Kelly Evans (4:42)

All right, thank you very much for bringing us up to date. We appreciate it over there in Dubai. And even as oil prices are a touch lower today, the energy industry is warning that painful moments may still be coming. Chevron is warning that California risks a fuel crisis unless the war ends as diesel there is now topping $7 a gallon. And our next guest says the market and policymakers may be a little too sanguine about this disruption. Let's bring in Kevin Book, managing director for research at Clearview Energy Partners. Kevin, it's great to see you. Don't know if you caught some of that report. The market is clearly viewing all of this as signs of progress. Do you agree?

T-Mobile Announcer (5:18)

Well, I think conversations are signs of progress. Iran has demonstrated its ability to have long negotiations. Trump, for his part, has demonstrated his ability to extend deadlines. So I don't know that we can conclude we're imminently on the cusp of a bargain. But talking is better than not talking.

Steve Cork (5:33)

Sure.

Kelly Evans (5:34)

So I like what you just said there, that the Iranians, you know, they're having conversations. Trump doesn't mind kind of this, this being prolonged. So in other words, you're saying the market's take is correct, that this does appear to be passing into something that. I don't know if we use the word peace or not. How would you describe it?

T-Mobile Announcer (5:55)

I would distinguish between the market itself and the negotiations. The market itself is heading for a very significant tight period. We're effectively about 400 million barrels of inventories blocked or stalled. And we're talking about 400 million barrels of strategic reserves. That sounds like a perfect balance, except that the first part took 25 days and the second part might take four to six months. You're digging a one month hole that takes four months to fill. You're probably looking at a period of sustained high prices, maybe shortage.

Kelly Evans (6:25)

I see. So when we hear these warnings, and we spoke yesterday with Jeff Curry, who was quite clear about his concern that he said, look, we have to keep in mind oil is not a futures market, it's a spot market. The prices today reflect the market clearing today. It's not discounting necessarily what people think is going to happen in the future. And so for him, he thinks oil prices could go higher in the next few weeks as these shortages really hit the market. That said, he was looking at prices like the barrel price in Oman, which was much higher. It's come down a little bit. So are there leading indicators that even those physical shortages could start to be alleviated?

T-Mobile Announcer (6:58)

I think one way to think about it is that theory and reality convergence settlement. So you have these future contracts with long dates and you have trades happening in the spot market and eventually they tend to converge. So one could go up, the other could go down. We're seeing some of those spot prices coming down, but they're still coming down from great heights to 100, being sort of the new 60. If you see this bearish bias in the market, we're selling off $15. But to what? To 100, Kelly.

Kelly Evans (7:23)

Right, right, exactly. So if 100 is the new 60 and we're talking about Brent, we talk about the US benchmark, but the Brent benchmark does influence prices at the pump here, which I haven't checked today. Yesterday we were at 398. So you're saying that we are going, this is not the industry being alarmist, you really do think prices could continue to go up?

T-Mobile Announcer (7:43)

Sure. And it's got nothing to do with sort of the, the intent or the seriousness of negotiations. It's got everything to do with the inertia built into physically moving cargoes on the open sea. The cargoes that left the strait before the de facto closure began are all essentially arriving now. So even if reinforcements left today, we're weeks away from resupply to some of those destination markets.

Kelly Evans (8:04)

Understood. Is there anything else that policymakers can do in the meantime? Should they concentrate their efforts and trying to deal with the physical market problems or realities or with just trying to get a swift resolution to the conflict?

T-Mobile Announcer (8:17)

Well, I think the underlying problem has to be fixed. That's come from Fatih Birol at the International Energy Agency. It's come from a lot of analysts, peers of mine. I think we all understand that. In the meantime, the problem is that the interventions are insufficient, but they're probably also some of them going to look increasingly appealing. Appealing. So as prices rise, interventions tend to intensify and not always for the best. Sometimes they can crowd out capital, sometimes they can distort markets. So I'm saying they can have effects that preserve crises.

Kelly Evans (8:45)

And finally, what would it say to you or indicate if Iran ends up its demand is that it wants more authority over the strait? Obviously, the US and the President have been very frustrated by this and are constantly talking about taking that control away. If they are left with de facto control over the strait, is that an acceptable situation?

T-Mobile Announcer (9:05)

I think that's really for policymakers to decide. But the question of whether or not you can de risk the transit through the strait has been a looming question for years, and it doesn't look like it's being de risked right now. So whatever resolution arrives has to provide certainty on both sides. Iran has been very firm in their counter in the response. But I think that ultimately for this to have a commercial and market impact, it's going to have to be firm the other way.

Kelly Evans (9:29)

But you think it's unlikely that the oil price falls another 10, 20, $30 from here?

T-Mobile Announcer (9:35)

Well, I think eventually the oil price can equilibrate back around the oversupply conditions that we were expecting going into this year, assuming everything else goes back to the way it was. But it's a long way back to the way things were. Kelly.

Kelly Evans (9:46)

Yes, that sounds like the theme of a novel or something that could be written about this and many other issues. Kevin, thanks for making the time. Appreciate it.

T-Mobile Announcer (9:55)

Thanks for having me.

Kelly Evans (9:56)

Kevin, Book Joining us from Clearview Energy Partners. And with stocks moving higher after the reports of this piece deal easing pressure on the markets, both of my next guests think while the uncertainty around the war could continue, investors may underestimate the strength showing up beneath the surface of this market. Let's bring in Surat seti, managing partner at DCLA and a CNBC contributor. And Andres Garcia Amaya, who is founder and CEO at Zoe Financial. Welcome to both of you. Andres, you were just nodding as you heard Kevin talking there. So is 100 the new 60 and if so, is that a different reality for markets and consumers or do we, can we go back to the pre Iran war playbook or do we have to stay in the Iran conflict one

Andres Garcia Amaya (10:31)

no one could predict the future, but we could look at history.

Surat Seti (10:33)

Right.

Andres Garcia Amaya (10:34)

And when you look at history, what has driven bear markets is not oil spikes is if those oil spikes are accompanied with earnings all of a sudden dropping.

Steve Cork (10:45)

Right.

Andres Garcia Amaya (10:45)

It happened in 73, it happened in 90 and it happened in 2008 where oil spiked, but it was accompanied with earnings falling versus let's say 2011 to 2014 when oil spiked and actually stayed for three years above $90. But earnings held up and the markets were up 60% during that time frame. Right. So the big question is as we head into earnings, are the other stories falling apart or are they staying in place?

Kelly Evans (11:11)

How are you? I mean I always ask the question, but if positioning is the right word to use, I mean, are you being strategic about this? Do you go back to international and metals and you know, the pipeline and stuff? I mean, what is the playbook for you then?

Andres Garcia Amaya (11:26)

Yeah, I mean a big component of this is if you had a plan and now the market gave you a 10% discount, you probably rebalance.

Steve Cork (11:35)

Right.

Andres Garcia Amaya (11:36)

If we're sitting here in May and price is above 90 and earnings are starting to fall not just because of oil prices but because of other things. Okay, maybe the story is no longer there, but so far earnings revisions haven't been affected negatively, have been pretty good. So so far you have to look at the numbers and say if this is resolved and you know, call it weeks rather than quarters, then the other story still stands, which is earnings are re accelerating rather than falling.

Kelly Evans (12:05)

Surat, you want to jump in here and kind of comment on where you might be finding values in this market?

Surat Seti (12:13)

Yeah, you know, I like the point of the rebalance because I do believe that if we look through this and this is could be a couple quarter, there are some fallen angels out there that really are not Affected as much as input prices or a slowing economy. So Kelly, you and I have talked about Freeport in the past. You know, stocks down 15% off its peak. It's still up for the year, but the demand for copper is still going to accelerate. And a stock like this has just been taken to the woodshed just because it's a cyclical macro play. You know, other stocks to look at are we, you know, Waste Connections, which is a waste management company. It's really not going to be affected that much by what happens in the economy. This is a slow, steady grower trading at 15 times cash flow and it's trading at its, you know, one year low. So again, that's off 12%. So when you look underneath the market at a couple of these stocks that really haven't been, you know, directly affected, but because of the liquidity and people selling, you get stocks like those and then another one, Transdig, which is aftermarkets for, you know, airplanes. So that's another projection on people saying, hey, things are going to slow down, but that just means that people probably won't buy airplanes as much. They'll just get their planes fixed even more. So logically, something to buy when the market is unfairly punishing stocks that shouldn't be.

Kelly Evans (13:33)

What do you think right about the consumer in the broader economy? Is it still, is this still kind of a, as Andres was saying, in an event that kind of is happening off to the side or something that gets right to the heart of the, of how the economy is doing?

Surat Seti (13:46)

No, I think what we're going to see, the K shaped economy is going to get affected even more and the upper echelon and the K will all depend on the wealth effect. And I think that's going to be dependent on the stock market quite a bit. But the bottom is going to get hurt. So you're going to see really the discretionary stocks kind of probably pull back here, at least in the short term because consumers will be spending more of their wallet just using, you know, on input prices and gas prices. So I do think you need to be careful. And if you notice, I didn't mention any retail stocks or any of those because I know I think those might have some issues going forward. But some of the other companies that are more affected by the upper K

Kelly Evans (14:23)

won't be, I don't know, Andres, if you get into the details on a Wal Mart or Costco, and again, these are companies are such great executors and have taken so much share that even if their consumer runs into a soft patch. It's not to say there's a direct problem but if surrounds right and this worsens the K shaped economy hits people in the pocketbook, you know, right in that area. Is that a place where you'd be worried? What do you think about some of the consumer and retail ideas here?

Andres Garcia Amaya (14:44)

It all comes down to the magnitude of the effect, right? If, if unemployment we're here now, unemployment's at 8%. I think there's no way these companies are going to absorb that pain by just improving margin.

Steve Cork (14:57)

Right.

Andres Garcia Amaya (14:58)

But at the margin right now that AI story is not going away where companies are becoming significantly more efficient with less people and that's a whole other

Kelly Evans (15:07)

conversation you're not making the case for the K shaped right.

Andres Garcia Amaya (15:11)

So I think to a certain extent that depends what magnitude it will affect the consumer. No doubt without the, without the consumer the US is not going to be able to grow but so far been

Kelly Evans (15:21)

able to help people talk about how this is a capex year and to some extent you know that is the driver of the current business. So can actually the consumer be on the weaker side and this part of

Andres Garcia Amaya (15:31)

the economy carries 68% of GDP, right. So the consumer is not there. We're not going to be in great shape. But when you look at leverage for the consumer for instance is nowhere where it was in a weight or 09 so from that perspective they might not have as much firepower as they did before but the magnitude of the effect is not going to be as maybe the scenario.

Kelly Evans (15:51)

Surat, do you kind of agree with that that we can have an economy where there's huge investment and you know the consumer has to be okay but doesn't have to be great?

Surat Seti (16:00)

I think so that's what you're seeing right now Kelly. The other positive that's coming is the tax refunds. So even if there is this incremental cost coming, I think if the consumer stays where it is, efficiencies are where they are. I do think the market could keep on going up. But we do need to get through this period of uncertainty especially if, if the oil prices or the macro will then kind of have companies starting pullback and that's really what we don't want because then that will affect hiring down the future.

Kelly Evans (16:30)

All right gentlemen, thanks. Really appreciate it. Surat SETI Andres Garcia Amaya Coming up, how are retail investors reacting to this market? We'll get the latest trading data from Robinhood's chief brokerage officer ahead. But first OpenAI Shocking Wall street by shutting down its short form video app Sora. What's behind the decision? Here's what the CFO told Jim Cramer last night on Mad Money we just are facing a lack of compute, so we're having to make those really difficult decisions. I've talked about it to many investors often we hold back models, we don't release features, and this was an example of having to prioritize. Doesn't mean we won't get back into areas of creativity. It's not a never, it's just we have to make hard choices. This is the Exchange on cnbc.

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Kelly Evans (19:20)

OpenAI is planning to shut down its popular video generation app Sora, just the latest pivot as the company looks toward its IPO and probably faces substantial competitive pressures as well from the likes of Anthropic and Google. Mackenzie. Seagallos has more in today's tech check. Hi Mac.

Mackenzie Seagallos (19:36)

Hey Kelly. So this is all about open air doubling down on discipline as it moves closer to an ipo. Sara may have looked like a breakout hit at launch, but the app's momentum faded quickly. It was pushed out just weeks after Google's rival product release, Veo. And while it generated a big early spike in downloads, it never became a durable consumer habit. Sensor tower data shows monthly download growth turning negative after November. It was also very expensive to run, with some estimates putting its annual run rate alone north of $5 billion. So this looks a lot less like OpenAI walking away from a winner and more like the company deciding Sora was worth the compute capital and attention required to keep backing it. Now there is fallout beyond the app itself. With Sora shutting down, Disney's planned $1 billion investment tied to the platform goes away to another one of those headline grabbing deals that never actually crossed the finish line. And all of that fits a broader pattern. OpenAI is winding down the side hustles and focusing on businesses and products that it thinks will matter most to investors. So that means pulling out of E commerce and consolidating product offerings by folding its browser, chat, CBT and Codex into a single desktop super app. And then inside of OpenAI, executives are doubling down on the company's core business in securing revenue streams by pushing an ad strategy and focusing on winning enterprise contracts as the focus really turns toward their looming ipo.

Kelly Evans (21:06)

IPO or not, we canceled our account because Gemini is so much better. Mac, thank you very much. Mackenzie Seagallos. Both of my next guests agree that OpenAI's pain will ultimately be Google's gain. For more, let's bring in Alex Cancerwitz, founder of Big Technology and a CNBC contributor, along with Needham Senior analyst Laura Martin. It's great to see you both. Alex. Just take it away here. I mean, these are major, major pivots that OpenAI is making.

Alex Kantrowitz (21:31)

Absolutely. Well, OpenAI clearly sees that there's more opportunity on the business and coding side than it necessarily sees on the consumer side of artificial intelligence. Of course, Chatbot has the latest report is 900 million weekly active users. Maybe that's a billion now. But the economic opportunity in places like coding and doing work for you and knowledge work is just so massive that they're going to direct their compute away from the consumer use cases and towards these business use cases. And that leaves the door wide open for Google not only to gain traction in the consumer market with these products, but also to further its research. Because when you build video models, when you build image models, you teach the AI a little bit about how the world works, the physics of the world, how objects interrelate. And it's very valuable when you're trying to build models that understand how to act in this world. So I think it really is a boon to Google which has the compute and is able to do this.

Kelly Evans (22:21)

Alex, I just wonder when I hear enterprise, my thought goes to is what we're trying to say is that they're giving up, they're surrendering. In other words, they go, well we can't be the best, so we'll just go sell to companies who hopefully won't notice the difference.

Alex Kantrowitz (22:34)

I don't think it's a complete surrender because Chachi Beat is still very popular outside of business uses. But I think a light pivot is probably the best way to look at it. They see what anthropic is doing, they see the money that Anthropic is making, the leads that it's building enterprise and they see that this technology is evolving in a way that's making it very useful for those type of activities, things like building code through agents and other work that it will do on your behalf, whether it's, you know, going through Excel or building presentations. And you know, as they look ahead they just see that that is so valuable they can't lose any more ground there. So it is in, you know, in some way giving Google this opportunity. But there's also a trade off for Google. I think that it will have to decide on its own which is whether it wants to spend some budget of its compute towards these use cases that they haven't taken off massively. Like video generation is still just kind of basic and not blowing up like the other use cases.

Kelly Evans (23:25)

And Laura, that's a perfect place for you to jump in here. I think you still have a $400 price target on Google and for see this clear upside for them as a result. But are there implications for the PNL if they now have to do some of this kind of, you know, compute intensive but maybe lower margin business?

Laura Martin (23:42)

Yeah, it's fantastic for Google because really Google has to win because of YouTube in user generated content and making best in class creative content apps. So it has to win in this space. And so, you know, and, and they have a lower cost of capital. We estimate that the cost of capital for Google is 6 or. And we hear that OpenAI is raising capital, a 17% guaranteed return.

Kelly Evans (24:06)

Right.

Laura Martin (24:06)

So Open Air needs to be far more careful about its strategic narrowness. Whereas Google must win in video creation because of its YouTube platform.

Kelly Evans (24:15)

Laura, as these sort of chips settle. And remember, I think it was Sebastian Malaby who wrote that New York Times out that a couple of months ago warning that OpenAI could go out of business because they don't have this larger business that can absorb, you know, effectively a commoditized type of content producer. And so if that's the case, should it be absorbed into one of the other big tech companies?

Laura Martin (24:37)

Should open I be absorbed?

Kelly Evans (24:38)

Yes. In order. I mean will they at some point look towards a deeper pocketed partner like one of the other mag7 so for

Laura Martin (24:47)

now I think we're in open land. There's a land grab going on and the hyperscalers. So that would be meta. Amazon and Google are paying for their investments in Geneva through free cash flow and they should do that because their cost of capital, like I said, is sort of 6 to 10 and it is the lowest cost of capital. So that's how they should use their free cash flow, not buying in shares. So you know, I think they're running forward to see if they can be winner take all and I think I would be shocked if they actually bought somebody else because they can do it on their own build versus buy. I think they're building faster and they're building with their own people in their own way that benefits their core business. And if you buy somebody else OpenAI's their stuff was not made to benefit social media for matter or E commerce for Amazon or search and YouTube for Google.

Kelly Evans (25:35)

Do you quickly on Google, Laura, do you just think that even after the share price from the moment Gemini launched, the shares have been on a complete tear. The most recent Gemini, the really, the really good one. So is this now priced in in other words, if you took today's news and said hey, that's the reason to own Google, is that too late?

Laura Martin (25:55)

No, I think these are going to be winner take all markets and the clearest winner that's transitioned their Internet business to the open only one is Google search. Google searches transition to answers and we know it's making them more money. Search line item in their PNL is accelerating so they are the only Internet winner that has proven they are going to be able to make the jump to generative AI tools and features.

Kelly Evans (26:19)

Laura and Alex, it's great that we have you here because we are getting the jury verdict right now in the social media addiction trial involving Metta and Google. Let's get back out to Mackenzie Segalos. Mac, how did it rule?

Mackenzie Seagallos (26:30)

So, Kelly, after more than a week of deliberations, a jury in Los Angeles finding Both Metta and YouTube liable on all counts in this bellwether civil case over allegations that their platforms were designed to be addictive. That, of course, comes just one day after a separate jury in New Mexico ruled against Meta in a case centered on similar claims about product design and child safety. Now, in this LA case, jurors were asked whether the companies misled the public about the safety of their apps and whether certain design features contributed to the plaintiff's mental distress. She had alleged that she became addicted to social media while underage. Jury completely finding in favor of the plaintiff. Now, as for damages, they set that at $3 million, with Meta responsible for paying 70% of that sum.

Kelly Evans (27:15)

Kelly. Wow. So there were seven counts here. On all seven for Metta, they were found negligent, basically. And all seven for YouTube, they were found negligent. And you're saying of the $3 million they're assigning, what did you say, three quarters of that to Metta?

Mackenzie Seagallos (27:30)

Yeah, 70% will be paid out by Metta, but 3 million is coming in a lot lower than some legal analysts had expected. And I've got the list of seven questions here. First one, was YouTube? Was Metta negligent in the design or operation of their platform? Definitive yes from the jury.

Kelly Evans (27:44)

Wow. Mackenzie, thank you. There is not much movement, by the way, in shares of Meta or Alphabet, but we do have Alex Kantrowitz and Laura Martin standing by. Alex, you and I spoke when this trial kicked off, and you warned that, you know, while other social media players like Snapchat had chosen to settle, these two did not. You warned as well that if there was a ruling against them, there are hundreds more lawsuits waiting in the wings. So I wonder, what? Even if this settlement amount is less than people thought, at $3 million, what happens now?

Alex Kantrowitz (28:13)

Absolutely. Well, it's not a lot of money. Obviously, Medic and Google can stomach this money, but you're right that there are hundreds of other cases that are in the pipeline that are waiting to be brought against these companies. And it's going to make the plaintiffs much less suitable or much less agreeable to settle them. And it's going to set this precedent that when you come to a court, you're already going to have in the back of the judge's mind that similar cases have been ruled against companies like Metta and Google. So ultimately this could lead to big problems for them down the line.

Kelly Evans (28:40)

Laura, jump in here. I think how does, how do you expect this, not only Alphabet, which we were just discussing, but Metta, which I think you're more neutral on, you know,

Laura Martin (28:48)

and I'm going to take the other side because contingency lawyers are have to bring these class action lawsuits and with $3 million is your upside? No contingency lawyers taking that because these are tens of millions of dollars to prosecute these cases against Meta and Google, which have best in class lawyers because they've been doing this for a decade now. And I think the 70% attributable to Meta, even though it's only $3 million total, is accurate because they go after kids. I think juries aren't trying to protect people over 18 and that is the primary use case for YouTube, but they really are the government and juries are trying to protect kids. And I think that some of these addictive algorithms really do negatively affect 13 year olds and 12 year olds, as we know from suicide rates. There's a long history here. Isn't that damage being done to adolescents,

Kelly Evans (29:35)

Laura, Isn't that, who's, isn't that the YouTube audience? There's a lot of 12 and 13 year olds.

Laura Martin (29:40)

You know, maybe, but that's not what the court said. It said YouTube only owes, it's a much bigger platform. Right. And it says it only owns 30% of the total. So I would say no, but I don't think contingency lawyers. So you'd have to have governments going after these companies and you know, typically they aren't as successful and the damages is the real issue here. We have the Google case that found where the court found him guilty and they got no hand slap. So the damages is the problem here. If we're talking about attracting other litigators based on this, this jury trial today, great analysis.

Kelly Evans (30:11)

I appreciate both of you being here. I may also help explain why shares of Met are actually ticking back up towards session highs and Alphabet is unmoved as this verdict comes down. Thank you, Laura Martin and Alexandria joining us there. Coming up, the homebuilders are under some pressure since the Iran war broke out and higher rates aren't helping the housing market. We'll hear from Katie Holmes, new CEO, about how they're navigating this environment. That's next.

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Kelly Evans (31:52)

The homebuilder stocks are headed toward their worst month in a couple of years as interest rates creep back and home mortgage rates creep back towards 7%. Now Diana Olek is here. With the impact that's having on demand, I can't imagine it's a good one.

Diana Olek (32:05)

Diana no Kelly and let's start with the builders. KB Home late yesterday reported disappointing quarterly earnings and then lowered guidance.

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Consumers have been faced with a variety

Kelly Evans (32:19)

of challenges over the past two years,

T-Mobile Announcer (32:21)

and the conflict in the Middle east that began at the end of February has added another layer of uncertainty.

Diana Olek (32:28)

This morning we got weekly mortgage applications. Demand from home buyers dropped 5% for the week and were barely 5% higher than a year ago. Last year rates were higher. Add to that Zillow's chief economist Misha Fisher put out a new forecast showing projections for home sales. Depending on how long the war drags on, Zillow's original forecast for this year was a 4.3% gain in sales. Now Fisher modeled the increase in rates and a potential upgrade uptick in unemployment resulting from higher inflation. If the current scenario only lasted through the end of April, home sales would still rise 3.48% year over year. By July 1, that drops to 2.33 September 1 to 1.21. And if mortgage rates stayed 50 basis points higher than their original path and unemployment also rose by 20 basis points for the rest of this year, Fisher forecasts a decline in sales of just under 1%. Kelly all right.

Kelly Evans (33:21)

People are getting somewhat used to these high rates, as painful as they are. Diana, thanks very much. Diana Olek. Let's get to Christina Parts and evils now for the CNBC news update. Hi, Christina.

Diana Olek (33:30)

Hi, Kelly.

Kelly Evans (33:31)

President Trump has appointed top business leaders to a science and technology council. The initial list of names includes Mark Zuckerberg, Larry Ellison, Jensen Huang of an Nvidia, Lisa sue, amd, Michael Dell, Mark Andreessen. And the group may eventually include up to 24 members. Trump established the council back in January via executive order. David Sachs, Trump's AI and crypto czar, will serve as co chair. Lyft has joined rival DoorDash in offering

Mackenzie Seagallos (33:55)

relief to drivers who are dealing with

Kelly Evans (33:57)

rising gas prices due to the war in Iran. Lyft drivers can receive rewards for 60 days, such as cash back on gas when using a lyft debit card. DoorDash announced a similar program just on Monday as the national average approaches $4 a gallon. And the NBA Board of Governors just approved the exploration of team expansion to Las Vegas and Seattle. As part of the process, the NBA has engaged investment bank PJT Partners as a strategic advisor. Sources tell es that a bidding process is expected to generate offers in the seven to $10 billion range for each team. It's the going rate. Like Tilson once said, it can't be a middle class billionaire anymore and afford it. And I always say it's just pocket linked, pocket lint, pocket pocket change. Christina, thanks. Coming up, retail investors have largely been in the driver's seat of this market in recent years. How are they faring now? Robinhood Crude's chief brokerage officer will be in studio with the latest investing trends they're seeing after the break. The price of oil is what everyone is watching these days, including retail investors who are also diving in as the Iran conflict continues. In fact, according to Robinhood, Crude Oil, along with s&P, Nasdaq 100 and Gold Micro Futures have been their top volume drivers in March. Let's bring in Steve Cork, the chief brokerage officer there. It's great to have you here. Welcome.

Steve Cork (35:18)

Thanks for having me.

Kelly Evans (35:19)

First of all, is this normal to see such high, should we even allow it on some level? Right. I know that in moments of geopolitical conflict, sometimes you don't want extra participants and they're driving the price up. Or maybe in their case, you could argue they're helping. Maybe they're taking the other side of this. So what are you seeing?

Steve Cork (35:33)

I would say it's it. So the, the, the customers that have been entering into the oil complex or energy complex, have been doing it on a couple of fronts. Number one, on the futures side and what that affords them is the ability to trade this on a weekend. So on a Sunday night as this all unfolded, they're able to take advantage or protect the portfolio because they know what that price of oil jumping over 100 it does to a portfolio. So it's just a risk management.

Kelly Evans (36:04)

So it's almost like they're buying crude to protect against.

Steve Cork (36:07)

Exactly. Going down secondarily the percentage of Robinhood customers that are participating in the energy sector, we could see it, it's like one and a half percent of all trade in the ETFs or the single names was Robinhood. That's moved up to about 3%. So they're just either taking advantage of opportunities or hedging a portfolio in a way that was not possible in the past because of the hours.

Kelly Evans (36:34)

It's a great point. Let's get into this larger discussion of whether they're underperforming. As you know, have they been underperforming lately retail investors on your platform?

Steve Cork (36:42)

So if you look, there were a couple of conversations that were happening prior to this segment and they were talking about the health of retail customers at large and they were specifying Robinhood retail customers. And the way that they were looking at it was the A on a quarter over quarter basis. And our customers are very heavy into crypto. So as crypto has fallen, of course the AUM has fallen as well.

Kelly Evans (37:07)

Interesting.

Steve Cork (37:08)

Yes. So you. If, if I looked at on a quarter over quarter basis, I would say yes, they're probably underperforming the S and P and S and P which isn't crypto. Right. However, if I go back and look over the course of two years or three years, which is the time horizon of most investors is not a quarter. It's over a long period of time. Especially If I'm a 20 or 30 year old, which is what we have.

Kelly Evans (37:32)

Yeah.

Steve Cork (37:33)

They significantly output perform.

Kelly Evans (37:35)

They've outperformed because of crypto and because

Steve Cork (37:37)

crypto and just all the other investments that, that they've made that you know, have periods where they can be down for a quarter but you know, over the long run that's what they care about.

Kelly Evans (37:47)

Which means, and this is a hard one to call. I don't think you and I are going to have the answer but that a lot of what happens with them from here is going to depend on what happens with crypto, if it can.

Steve Cork (37:55)

Well, crypto. Crypto crypto and broad based market. You know, the most popular names, the software names, the Tesla, the Nvidia's everything thing that is very popular from a retail standpoint. Those are the things when they see, you know, those dip 40%, they jump in. Now it worked out really well for them around the tariffs. They, they jumped into all those names and they significantly appreciated and then they did some rotations into names that they thought underappreciated. But we shall see what happens.

Kelly Evans (38:26)

No, that's exactly right. So it sounds like what you're saying is there's still tons of action activity in kind of. I don't know if prediction markets are eating into anything that you'd see on the crypto side or in financial markets or if that's more of kind of a sports and other, other areas kind of bet they're making it.

Steve Cork (38:42)

I would consider it separate. You know, there's like three in the futures market. We have about 48 contracts, you know, metals, energy, etc. Prediction markets much larger. But it's across, you know, a host of different areas, sports being one of them. And we watch it, they aren't really delving into, you know, it's similar customers but it's not really cannibalizing, you know, equity or crypto trading.

Kelly Evans (39:07)

Do you ever think it get to the point where their activity and prediction markets would be so large because I assume on net they will lose money, not gain it, that's fine, but that it would contribute to chronic underperformance. In other words, if you looked back and said, well, the only thing available, but maybe not, maybe it's not that different from poorly timed trades or something like that.

Steve Cork (39:25)

No, I think that the way people use, other than some of the complex like sports, the way people use them is, hey, is the Fed going to lower rates? What's crypto pricing going to be? So they're using them sort of as a additive instrument. It's kind of like short dated options. I can have more precision. I know Apple's reporting earnings on a Friday. I don't need insurance for a month when I know that this event is happening in a day. It's just giving them more precision to be instrumental in the way that they're hedging a portfolio or taking advantage of an opportunity.

Kelly Evans (40:03)

Interesting. Steve, you always bring us the fascinating data points. Thank you, thank you for having me. Steve Cork joining us there from Robinhood. And coming up, shares of this name are down 15% since the start of the Iran war. At the having their worst month since October, we'll reveal our mystery chart and tell you what's driving the drop. That's your clue. What's driving the drop? That's next. Market is steady this hour as we have some breaking news out of the White House saying the president will meet with Chinese President xi Jinping on May 14th and 15th. The President will also host Xi for a reciprocal visit in Washington at a later date to be announced this year. So there you can see the impact of the Iran war pushing that back. But we now have clarity on when that will happen, which is to be in mid May. In the meantime, Ferrari was our mystery chart, down 15% in March with other luxury names like LVMH and Kering under some pressure as well. LVMH having its worst month in a year. All of this is the Iran conflict has shuttered Middle east tourism and is leaving retail stores there empty. Robert Frank is here with a closer look at how these companies are responding.

Diana Olek (41:05)

Robert?

Robert Frank (41:06)

Yeah, and how investors are responding. Very interesting because you look at shares of LVMH, Kering, Hermes, those other big luxury names down 10 to 15% since the start of this war. Ferrari announcing it is going to halt shipments of most cars to the Middle East. Those shares down, as we just mentioned, nearly 15% for the month. Now the region in the Middle east had been the fastest growing luxury market in the world. Last year they grew between 6 and 8%. That compares to about 3% growth in the US now. Total sales in the Middle east reaching about $20 billion a year. That's about 5 or 6% of the total global market. But Dubai especially has become a magnet for global wealth and for wealthy spenders. They account for about half of all luxury sales in the Middle East. The highest earning stores in the world for many luxury brands are right there in the Dubai mall. Bernstein analyst LucasOlka saying that sales in the region could fall by half in the quarter. That's his worst case scenario. But that would be a minor hit to the overall luxury growth. But if oil remains high, spending on luxury globally could come under pressure.

Eric Brock (42:14)

Higher oil prices could prompt a downward adjustment in global stock markets. And that would be very bad because

Alex Kantrowitz (42:22)

consumer feel good of people with wealth

Eric Brock (42:25)

in the stock market would be damaged.

Robert Frank (42:29)

That would be like a reverse wealth effect there. Now for the full story and what the war could mean for luxury and wealthy consumers around the world. Sign up for the Inside wealth newsletter out tomorrow morning@cnbc.com Inside Wealth Again, this

Kelly Evans (42:42)

this whole region had built itself up as this hub. And now of course, Some of that is being called into question. But that's interesting what you said, you know, declines of 50% in sales as this continues. Robert, thanks very much. Appreciate it. Robert Frank. Coming up, the autonomous drone maker Ondas is up about 3% since the Iran war began, but shares are up 1300 percent since last April. And this has become a retail trading darling. We'll talk to CEO Eric Brock next. Shares of drone maker Ondis climbing 5% this month, but that's not the real story. They're up 1000% over the past year as geopolitical risks boost demand for military equipment. The company just raised their full year revenue guidance this week and say they expect outsized growth, driven in part by deals and acquisitions, including a partnership with Palantir that was announced just two weeks ago. Joining us for more is Eric Brock. He is the chairman and CEO of Ondus. Eric, it's great to see you and kind of tell us about the journey to this point where here you are with traders looking for companies whose business might now increase because of what we've seen in Iran and in the Ukraine.

Eric Brock (43:46)

Sure, Kelly, thank you for having me on. And it has been a journey not just for Ondaz, but the industry. So we've been growing within this industry. And the thing you have to firstly understand is, you know, we're reading about drones and how the impacts they're having on the battlefields every day, if not every hour today. But the work being done to develop these technologies started in many areas 10 years ago or more. So there's been a lot of effort. These are complex technologies, particularly to drive the software enablers that folks like Palantir can catalyze the autonomy around what we do. You know, it's very complex, but we're at that point where now the technology is maturing. You're seeing a big adoption cycle. And that's sort of, you know, why, why you're seeing all this interest in not just Ondaz, but the sector.

Kelly Evans (44:30)

You've built this company in many ways through acquisitions. Is that continue, does that continue to be the playbook, or is it kind of positioned how you'd want it to be positioned now?

Eric Brock (44:39)

Absolutely. There's a massive opportunity here. So again, going back over the last five plus years, 10 years, we've built a lot of drone companies. When I talk about drones, I'm talking about aerial platforms, I'm talking about ground robots, I'm talking about surface vessels, I'm talking about sensors at the edge. And all that stuff has to come together. What we haven't done is build companies and that's a whole different ballgame. So we have a cottage industry in the drone sector of the United States which is subscale and it can't be that way, it can't remain that way if we want to deploy these critical technologies for national security. So we see the opportunity to bring scale operating platform, create the business and fund that. And really what we're seeing is a venture funded industry which has done incredible work to get to where we are. It's now transitioning towards growth capital and we think the public markets have certainly a tremendous amount of interest investing in this cycle because we're going to build some really big companies as these markets get penetrated. So, so that's what Onus is positioned to do.

Kelly Evans (45:35)

And you have customers in Asia, customers in Europe, Israel. Is the US government one of your customers? And talk a little bit about the autonomous people of the business.

Eric Brock (45:46)

Yeah, for sure. So yes, the US government is a customer. We're selling counter drone technology. We're selling ISR technologies to the, to the Air Force, the army, the Marines and we're certainly looking to do a lot more of that. The autonomy really is, you know, is everywhere. Right. So these are enabled. So you think about the individual systems. You know, take a drone, we fly that drone autonomously and we've integrated the technologies, things like visual navigation and importantly we've made them reliable. Right. There's a lot of trial and error and effort you have to do working with customers to perfect and harden these systems. But we're there. What are you going to see now which is even more interesting, where folks like Palantir come together is you start to bring the layers together. So what we announced on Monday was we're acquiring a company called Worldview. Worldview has high altitude balloons. So these are Stratus in the stratosphere, a new domain for intelligence. We start to connect the intelligence you can collect in the stratosphere and start to command the other layers. So you can, you know, the stratosphere can identify a threat, an anomaly. We can deploy a drone, a fixed wing drone using Palantir capabilities around command and control and even, you know, then do further orchestration of that, even down to the ground layer. You know, it's really critical for way the battlefields are moving.

Kelly Evans (47:04)

And finally, are you imagining this is becoming a multibillion dollar? I mean you're, you're kind of, you have the financials moving in a good direction, but you're nowhere near the size of the major defense contractors. We think of is that part of the playbook or no?

Surat Seti (47:16)

No.

Eric Brock (47:17)

It's really different business models. It's not either or it's not. You're going to have fighter jets or drones, you're going to have both. And what you see is these business models are quite different. You go to market strategies, how you sustain them, and, you know, so I think you're going to see a really big sector in and around unmanned autonomous systems. And that's, that's really driving our business plan and strategy.

Kelly Evans (47:37)

Yeah. Well, speaking of the stratosphere, your shares are certainly up there lately after the kind of move that they've had. Eric, thanks for joining us to talk about it. Really appreciate it.

Eric Brock (47:46)

Thank you.

Kelly Evans (47:46)

Eric Brock with Ondus Holdings. That's it for us. Thanks for watching the exchange and power lunches after the break.

Diana Olek (47:55)

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