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Court Rules Against Musk in Legal Battle with Sam Altman, OpenAI 5/18/26
00:52:26
We go live to the courthouse after Elon Musk loses his court battle against OpenAI and Sam Altman; Big Technology’s Alex Kantrowitz and Deepwater Asset Management’s Gene Munster join Kelly for instant reaction. Plus, what to watch in Walmart’s and Target’s reports this week.
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- [00:00]
Kelly Evans
As a mom, when I first heard Make America Healthy again, yeah, I was all for it. But then they loosened the rules so companies can put more forever chemicals into our kids water and air. Chemicals linked to birth defects, asthma and cancer. Why? So companies can profit more.
- [00:18]
You should do your own research.
- [00:19]
But to me, making us healthy again would mean keeping these toxic chemicals out of our lives. CommonSource is responsible for the content of
- [00:28]
this ad paid for by CommonSource. Not every sale happens at the register. Before AT&T business Wireless checking out customers on our mobile POS systems took too long. Basically a staring contest where everyone loses. It's crazy what people will say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sale or two.
- [00:52]
Kate Rooney
Sometimes I do miss the bonding time.
- [00:54]
Kelly Evans
Sometimes AT&T business Wireless connecting changes everything. You're listening to the Exchange. Here's today's show. Scott, thank you very much. And high rates are ruining the rally today. Although the Dow is trying to go positive. Welcome to the Exchange. I'm Kelly Evans. Stocks are still mostly lower, especially the NASDAQ leading the declines down about 3/4 of a percent as keep an eye on the 10 year treasury yield there. It continues to rise. We're back up near 4.6 again today, just a hair below that level. These to the highest levels in about a year. And the semis are also under pressure with Micron leading the memory declines. Nvidia down as well ahead of its earnings report on Wednesday. You can see Nvidia Micron shares I should say down about 5%. All of that said tech has powered the S and P up 15% since the March lows. The equal weighted index up just 7% in that time frame. And our next guest says that's a warning sign. Joining me in our opening exchanges, Liz Ann Saunders. She's the chief investment strategist at Charles Schwab. I believe that's what you said if I'm not mistaken. Liz Anne, it's good to see you again.
- [02:02]
Liz Ann Saunders
Good to see you too. Yeah. Kelly, there is a little bit of halitosis with the move off the March lows that we have seen. Lots of ways to measure that. But it's still less than 10% of the S&P stocks are trading at 52 week highs and it's less than 20% that are trading even at 4 week highs. So we have seen this narrowness and under the surface a lot of really rapid fire rotations and churn under the Surface. And I think best case scenario that could persist at least in the near term.
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Kate Rooney
Right.
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Kelly Evans
Although it's interesting once again, I mean you could so many people say go with the equal weight, it's too top heavy. But you continue to be rewarded for sticking with the market cap size that we have in front of us. Right. I mean, is there any real reason to fade tech when it continues to put up the earnings growth to justify the size that it is in the market and these valuations?
- [02:55]
Liz Ann Saunders
Well, I think trying to take a timing approach where you say, okay, when is profit, profit taking going to kick in? Just consider portfolio based rebates, rebalancing strategy. So a lot of rebalancing that gets done whether you're at the institutional level, the mutual fund complex or even individual tends to get done based on the calendar. You might do it quarterly, you might do it annually. But you can do portfolio based rebalancing where because of how rapid these rotations can be and the extremes on the upside that we have seen in certain concentrated areas of the market, you force yourself to take some profits and add into areas where there has been commensurate weakness. And I think that's the better way to stay in gear as opposed to to time some point where you're going to get that inflection point.
- [03:41]
Kelly Evans
Let's talk about rates. What's going on there? Do you think this is the market testing? KEVIN Warsh?
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Liz Ann Saunders
Well, either the bond market or the stock market, sometimes both tends to test a new Fed chair. It happened typically with the stock market. In the case of Janet Yellen, she wasn't tested so much by the stock market, but she was a bit by the bond market. And this one would, would have, you know, nailed it to the extent this continues with the actual day that, that he got termed as Fed chair. But yeah, that is a common occurrence. And the bottom line is he has a different set of views on inflation, believes in trimmed mean measures of inflation. The rub there is that those have been rising as well. And he has the productivity argument associated with why short rates could go down. I'm not sure how quickly he's going to be singing that tune in light of the fact that neither of the Fed's dual mandate is suggesting anything resembling rate cuts or easier monetary policy here. So I do think we are seeing
- [04:42]
Kelly Evans
a bit of that 107 for WTI. It's just stubbornly high. Maybe it goes a little higher. You saw the President said yesterday, you know, I don't know again if that matters in the sense That a couple bucks here and there. The, it seems like the consumer is rolling with it. Maybe you could say it matters just because it's so persistent and the effect of the, the tax cuts and everything, maybe, maybe that's going to start to wear off.
- [05:06]
Liz Ann Saunders
Well, where it matters is that the latest headline inflation increase, if we use the CPI at 3.8% that's now running hotter than wage growth in year over year terms at 3.6%. So now you're in negative territory in terms of real wages. Now we know that it's up the income spectrum that has really been sort of funding the consumer spending side of the economy. We also know that down the income spectrum is where you are seeing signs of delinquencies and defaults. Whether we see some convergence, I think in the case of the higher end that would probably only come if we saw any meaningful dislocations in the market. I think the wealth effect is a real thing. But I think what's going to be in focus the longer the Strait of Hormuz stays closed is not so much what the feeders to inflation are. That's kind of baked into the cake. I think the market is assessing that because what is the demand structure side of the story here? Where is the economic weakness part of the story? So far, not bad, but that's what should be on most people's radar.
- [06:10]
Kelly Evans
So two quick other we're going to hear a lot from consumers this week. A lot of retail names. It's kind of a hard space to trade and people always warn the more you pay attention to it, the harder it is to trade because you just seem to shine, you know, too much of a light on any given quarter trying to figure out these trends. Is there a strong conviction you have in any, any segment? If it's TJ Maxx, I don't even want to hear about it.
- [06:31]
Liz Ann Saunders
Well, I don't, I don't follow individual stocks at all from a sector standpoint. And I'll provide a caveat in a second. We, we actually do like the health feeling like, you know, we're inevitably going to get another rotation and that's been a beaten down area that has an improving earnings profile. Communication services sort of our way to kind of play the broader AI theme more so than technology and basic materials as well. So a little bit of a cyclical bent, but I think you want to have a factor based overlay on top of just monolithic sector decision making based on the belief of continued sharp rotations.
- [07:13]
Kelly Evans
So was that a long and elegant way of saying we don't really like, you know, consumer facing areas because I'm hearing you saying cyclical healthcare, but not a lot that might be what we traditionally think of as kind of retail.
- [07:25]
Liz Ann Saunders
Yeah. Consumer discretionary is actually on the more unfavorable end of the spectrum for us as it relates to the 11 sectors. Real estate is the second one that's on the more unfavorable end of the spectrum. So yeah, that's the other side of the sector recommendation span there.
- [07:41]
Kelly Evans
Yeah. No, it makes sense especially talk about that next actually what's going on there with yields and rates. Liz Ann, thanks so much. Really appreciate it today. Liz Ann Saunders with Charles Schwab. Let's get to that. Big week ahead of us for big tech with Alphabet tomorrow giving us a look at their latest innovations at the Google IO event. And on Wednesday, Nvidia reports earnings that single stock accounts for about 8% of the total S&P 500. And our next guest says that waiting may be beneficial because he sees Semis as his biggest area of confidence in the second half and says investors should own it here. Let's bring in James Chuckmuk. He's the CIO of Clockwise Capital. It's good to see you, James. And you know, most people cite off we were talking about this a few moments ago actually, you know, the heaviness of the tech weighting as a reason we should be cautious about the S and P. You see it as a positive.
- [08:31]
James Chuckmuk
Well, not exactly. So my point on Semis was more so that it's the only area of the market to have any semblance of confidence in because as we see it, there's a permanent to the higher oil prices, higher commodity prices that's going to bleed into the rest of the economy. And if we didn't have the semi trade, I think the market will look a lot different than today because you've been seeing 2% plus increases in quarterly earnings for the S and P. So we think that that's really the only area of the market where you can say that you have confidence in the estimates as you look into the back half of the year because we just don't know how much of that hit from the higher commodity prices is going to really trickle down into other areas of the economy.
- [09:15]
Kelly Evans
Fair enough. But I don't know how unusual it is for there to be an area of leadership in the economy. And you think back to the housing cycle of the early 2000s.com in the late 90s, you know, SAS in the 2010s. I mean, can it be the case that the concentration means that is the area that's kind of leading the business cycle?
- [09:34]
James Chuckmuk
Yes. And it's the only area that has any chance of, you know, keeping things going. And you're about 33% of the NASDAQ is semiconductor stocks, while 20% of the S and P is semiconductor. And that's really what's propelling everything because there's no outperformance really or there's a very marginal outperformance in other parts of the economy. And right now, I mean, wherever you look, we're operating right at the red line. Global yields, US yields, the Japanese yen, everything is operating at the max. And we've been really, really good at straddling that maximum line and intervening to bring things lower. But right now I think we're operating at a knife's edge. And semiconductor stocks are really the only semblance of, of an area where you can say with any degree of confidence that earnings should be sustainable.
- [10:23]
Kelly Evans
So you see this kind of, let's call it 4.6 on the 10 year, this is about the area that you think the stock market is kind of crying uncle.
- [10:32]
James Chuckmuk
Yeah, I mean We've touched this area 5% in the 30 year before and they've interviewed and come back down and they coordinate with the global central banks to help alleviate some of those pressures. But the challenge now is that there is a permanence we see to commodity prices being higher. I don't think that you can flip a switch and bring oil prices down. And right now about 10% of our portfolio is energy stocks. So we're leaning on semiconductor stocks on the one side. We're also leaning on energy stocks on the other. We just think that the market, it is where it is right now, but it's moved higher. But what you have to consider is the fact that AI is also a double edged sword in that it's kind of like Batman. You know, if you think about it, it's a hero on one side, that it's helping propel everything forward in the golden age on the other side of this. But also it could be viewed as a criminal vigilante on the other side where there's questions about how the public will perceive it and how that translates into demand down the road. So I think you got to be vigilant, you got to be nimble here and I think you have to lean into semis because that's the only area where you can say the numbers will likely shake out. Well, yeah, but I Don't think you can go long the market with, you know, you gotta be eyes wide open here.
- [11:53]
Kelly Evans
Fair enough. And I doubt you'd be pounding the table for consumer and retail stocks either. Given all this, I just wanted to mention Caterpillar. You know, when it's up 10% on earnings just a couple of weeks ago, it's hard to feel bearish about the global economy.
- [12:07]
James Chuckmuk
Yeah, look, the economy has held up well and, and, and that you can't discount that. Unemployment has held the labor market even some of the inflation data has held up better. But we still haven't seen a lot of these things trickle through and over the next month, next couple of months in the back half of this year, the higher energy prices are going to feed through. So yes, while things look good now, I mean we're operating at a beta just shy of the S and P. So we're not taking a defensive posture by any means. But at the same time we're cognizant of the fact that what's been good so far doesn't necessarily mean it's going to translate into future months. So the rate hike, the rate cut I should say is now increasingly off the table. And so you know, how, how does all this shake out? And you know the S p is at 23 times right now and, and you know, and all you really have is semiconductors.
- [13:08]
Kelly Evans
No, I appreciate you know, kind of the, from how you see it that that's how it, you know, kind of looks that I like the Batman analogy as well. James, thank you, Appreciate it. James Chuckmutt joining us there today. As you can see the Dow is now positive. NASDAQ remains the underperformer. A potential strike at Samsung putting further pressure on the memory trade today. You should see shares of micron down 5% there. Christina parts and Evilis has the latest on that story. Christina.
- [13:31]
Christina Parts and Evilis
Well Kelly, there was actually a big reversal because Micron was up in pre market and just memory and storage names today. Really coming down to the Samsung strike story which is starting to cool off a bit. For the past week investors were focused on the possibility of an 18 day strike at Samsung Electronics. Big deal because this is the world's largest memory chip maker. The fear was that any production hit could tighten memory supply and actually push memory prices even higher. But today I would say sentiments shifting a little bit after a South Korean court took steps to make sure Samsung's chip lines keep running even if the strike happens on Thursday. Negotiations also from the company saying that it's ongoing with the union and they're continuing ahead of Thursday's deadline. So that's seen as a positive. But there was another big move today, and that was a comment coming from the former Samsung chip chief Kyung, who said at a Korean forum this morning that memory prices could fall in the second half of next year as Chinese companies aggressively invest in memory chip production. He said if that new capacity actually comes online successfully from China, it could actually create a big enough supply increase to push prices lower. So another negative for the memory space then. Third point is that storage name Seagate that you can see is down 8%. One of the weakest names today after CEO Dave Mosley said at the JP Morgan conference this morning that building new factories and bringing on new machines would, quote, just take too long, suggesting maybe the industry can't quickly add capacity even if demand stays strong. So after a huge run in memory names this year, this past month, this past few weeks, today's fall might just be investors reassessing how tight this market may look going forward.
- [15:09]
Kelly Evans
Christina, what you said there in the middle about, was it Samsung who made those comments about chip prices maybe falling in the back half?
- [15:16]
Christina Parts and Evilis
So is it. It's a Sam. He used to lead a certain department within Samsung. He is still an advisor for Samsung himself and he gave a present today, a presentation at a forum in South Korea. And when he spoke, he said that China is working so aggressively to put memory supply on the market that he believes chip memory chip prices will fall because that supply is about to come on the market in the next few months or so. This is one man's comment, but you take his, I guess the market is eating it up within the chip world because he's a Samsung advisor.
- [15:47]
Kelly Evans
Right. Well, and also anything that would point towards, you know, when that cycle turns, watch out. Christina, thanks. Really appreciate it. Christina. Parts in Evolis Coming up, homebuilder stocks higher on a surprise rebound in builder sentiment. And we'll get pending home sales tomorrow. But there's something else happening this week that could have a big impact on the housing market. We'll tell you what that is next. Plus, the Yield on the 10 year treasury has surged nearly 40 basis points since Kevin Warsh was nominated for Fed chair and that's putting him in a tough position. We'll look at his options coming up on the exchange.
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Buck Horn
This is the exchange on cnbc.
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Kelly Evans
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- [17:49]
Kelly Evans
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- [17:57]
Kelly Evans
House is set to vote on a revised version of the 21st century road to Housing act this week. The bill is aimed at improving housing affordability, but it had one controversial provision that would force large investors in build to rent homes to sell those properties within seven years. That provision has now been stripped and that move has my next guest confident not only that a bipartisan agreement is within reach, but he's upgrading two residential REIT names as a result. Buck Horn is housing and REITS analyst at Raymond James. Buck, it's good to see you. And I mean this is a big deal that they stripped this, isn't it?
- [18:31]
Buck Horn
Oh, it's totally a big deal. It's a game changer for the SFR industry at least brings back life back into the sector after what was a really concerning and I think counterproductive proposal which are mentioning the seven year ban on institutional ownership of build to rent communities that would actually take housing stock out of the system and prevent new rental units from being built. I think what this enables is kind of the best of both worlds. So you still get the institutional band on SFR ownership of large portfolios, but it allows the existing operators to continue managing their portfolios as well as growth through the additional, you know, a new housing stock, new rental homes being built either by their by themselves or from third party developers. They can still buy from other home builders we believe and more important also importantly, they're going to be able to sell houses within the, you know, within their own portfolios to maintain market liquidity and preserve asset pricing. So all that, that works really well for the SFR industry, enables them to maintain their growth trajectory. And I think importantly, it takes a huge overhang that had been weighing on both of these stocks because both of these names, in our view, are trading about 30% plus below the implied liquidation value of their portfolios. So we think the valuation upside is still pretty significant. In addition to that, with mortgage rates surging the way they are right now, you're going to see a big demand lift from renewals. People are going to stay in place longer and rent some of these quality homes from AMH and Invitation Homes. And we think with spring leasing, demand is actually accelerated in the high gear with the volatility in the mortgage market.
- [20:08]
Kelly Evans
So both of those names you've upgraded to outperform. Now Emily Wilkins tells us she thinks the vote is expected to happen on Wednesday to get this through the House. Do you expect a clash with the Senate that would change anything and maybe take it back to a version that would be more stringent?
- [20:23]
Buck Horn
Yeah, it's a little bit of a risk to our call that we're kind of jumping on this in front of the vote, but we think this is a good piece of legislation that's a bipartisan compromise. You know, it's not a layup. There's going to be negotiation with the Senate on some of these provisions. We certainly understand that. But it's going to give the President a chance to have a win on affordability going into the midterms. And it also eliminates the counterproductive part of the previous Senate version, which would have eliminated the development of the new build for rent assets. So ultimately I think it does get passed. Hopefully it survives in the current form that the House version is in, or at least as similar as possible. But yeah, I think ultimately this is a good piece of legislation that'll get the win.
- [21:07]
Kelly Evans
We've had several analysts at the time that was first proposed arguing exactly what you're arguing, that they thought the ban would actually make it worse for the housing market. But so under this version now, if you're American Homes for Rent or Invitation or have you or if you're one of the private equity players, what are you. So you can you. Can you now build new housing and rent it out or can you just have to. What is it now that you're allowed to do and not allowed to do? Because I understand you don't have to sell what you have. But what. What about Going forward.
- [21:37]
Buck Horn
Yeah, I mean, that's the whole point is, I mean, so there was, there's been a growing industry of built to rent assets. So developers, you know, both AMH and Invitation are building some assets for themselves, but you have a lot of third party capital that's been building new rental communities out in the suburbs. But with this proposal going into place, we saw just a, just a real chilling effect on the development of these new communities. Any new starts that were being planned got paused because the seven year disposition window just makes it almost impossible to underwrite an exit timetable or, you know, potential, you know, what your exit cap rate might be ultimately. So it was really chilling, the development of new starts and new housing assets. But if you can just allow these companies to continue to own and operate at, you know, basically the way they're running the businesses now and grow through external development, which is, you know, the new build for rent asset that saves the trajectory, that enables the business model to keep growing going forward and able to recycle capital as well. So we think ultimately that's going to solve, you know, alleviate a lot of this affordability problem that we have out there.
- [22:47]
Kelly Evans
Buck, what would you say that now that this issue is kind of moving to the sidelines about, you know, build for rent? What is this Housing Affordability act actually doing to make housing more affordable?
- [23:00]
Buck Horn
Yeah, well, there's, there's a lot to it. I mean, ultimately there's, you know, various proposals around, you know, trying to reduce friction around entitlements or, you know, zoning permits and standards to enable a higher density. And you know, you got some manufactured housing provisions in there as well. You've got renovate to rent provisions included here. So there's a lot to the legislation, but ultimately enabling build to rent communities, you know, helps preserve the development of new housing stock that is vitally necessary to close the affordability gap.
- [23:33]
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- [23:34]
Buck Horn
Because right now the gap between owning a home, the monthly cost, you know, versus renting a house in many of these similar markets, it's about 800 to 1,000 bucks a month differential. So, you know, maintaining adequate supply of rental housing is absolutely critical to the affordability equation. And I think this, this compromise helps get that done.
- [23:54]
Kelly Evans
All right, Buck, thank you so much for joining us. To break it down, talk about the impact on the stocks and also what else may be coming. Buckhorn, we appreciate it. Thanks.
- [24:02]
Buck Horn
Thanks, Kelly.
- [24:02]
Kelly Evans
Coming up, Target has quietly outperformed both Amazon, Amazon and Wal Mart so far this year. But one of our guesses, don't get used to it. With retail getting ready to report, he'll tell us what makes him so bearish on that name and who he likes instead. As we head to break, a quick look at the price of oil. West Texas hovering around 106 a barrel right now, as the US calls Iran's latest proposal insufficient. We're back in a moment.
- [24:29]
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Welcome back with another look at the stock market. The Dow's now up 100 points. Look at that negative quarter percent decline for the S or just a quarter percent decline. It's a negative by definition. That's for the s and P.3/4 of a percent drop for the NASDAQ and just literally a thousand one one ten thousand below 4.6 on the ten year. We're also watching shares of Dominion Energy this afternoon popping nearly 10% after being acquired by Nextera in an all stock deal valued at $66 billion. NextEra says this merger will create the world's largest electric utility, although Nextera shares themselves are down about 6% on the news. Both CEOs will join Squawkbox tomorrow to discuss the deal around 7:10 Eastern Time. Big data center angle to this one. You'll want to catch that. And finally, a check on Cerebras. The shares are up about 5% today to 294. That's well above the 185 IPO, although the shares opened for public trading at 350 last week. Speaking of huge IPOs, SpaceX is reportedly aiming to go public in early to mid June, but new reporting suggests one of Elon Musk's key interests in the final Frontier could face some challenges. Seema Modi has more in today's tech check.
- [27:37]
Seema We've been talking to different experts about this Kelly Taking the AI boom into the atmosphere. It would be a huge win for SpaceX investors we spoke to say it's a big part of the company's mega $1.5 trillion valuation. Morgan Stanley says a success Successful execution of an AI data center strategy in space could significantly expand, if not multiply, long term revenue targets for SpaceX. The company reportedly generated about 15 to 16 billion dollars in revenue last year, with about a third coming from its launcher business, which designs and operates rockets. But as we know, launching anything into orbit is incredibly difficult and not to mention expensive. With Orbital Data center specifically, the key concern is cooling servers, which Deutsche bank analyst Edison Wu says requires massive radiator panels, a design that he says does not ex right now, and adds that radiation can also hurt the lifespan of AI chips. Google's Suncatcher project published a white paper that states its custom TPU chip handled radiation well. Perhaps why SpaceX is partnering with Google on this effort. That's according to the Wall Street Journal. Overall though, it's a big undertaking. But there are plenty of benefits like access to robust solar energy, less political pushback. But Musk isn't the only one trying to deploy data centers up there with competition from the likes of Jeff Bezos, Eric Schmidt, Kelly, even Sam Altman at OpenAI is reportedly investing in a space startup as well.
- [28:56]
So does SpaceX need space data centers in order to go public at a whatever the latest, you know, guessing is $1.75 trillion valuation.
- [29:05]
I think right now the promise of deploying space data centers is part of the valuation and the promise of what SpaceX says its growth strategy will encompass over the coming years. In fact, the last time Musk spoke on this topic, his timeline right now, timeline right now is around three years before we see that type of critical infrastructure living in the atmosphere.
- [29:25]
Although he does, they're like dog years. So three for 27.
- [29:28]
Kate Rooney
Let's see.
- [29:29]
Kelly Evans
He's done it before with other big experiments.
- [29:30]
All right, Seema, thanks. Let's get to Angelica Peebles now for the CNBC news update. Angelica.
- [29:36]
Angelica Peebles
Hey, Kelly. The CDC is implementing enhanced screenings and travel restrictions to reduce the risk of Ebola in the United States after a recent outbreak in Africa. Non US Citizens may be turned away from entering the country if they were present in the Democratic Republic of the Congress, Congo, South Sudan and Uganda in the past 21 days. The CDC, noting the risk in America, remains low. The Supreme Court declined to hear a challenge from the pharmaceutical industry over a program intended to curb drug prices in Medicare. The appeals From Novo Nordisk, AstraZeneca, Johnson Johnson, among others, allege that a steep discount from the Biden administration jeopardizes innovation. The failed challenge leaves the rejected appeals by local lower courts in place. And President Trump is discussing plans to install a helipad at the White House. That's according to the Wall Street Journal. The report says the new helipad is intended to prevent the new Marine One helicopters from damaging the South Lawn. Complete rollout of the new helicopters has been delayed due to the potential damage to the White House grounds. Kelly, back over to you.
- [30:37]
Kelly Evans
Thank you, Angelica. Appreciate it. We have some breaking news on the Elon Musk versus Open Air trial. Kate Rooney has the story.
- [30:43]
Kate Rooney
Kate hi Kelly. So the jury just ruling in favor of OpenAI and Sam Altman in this high profile lawsuit. This is based on the statute of limitations. Kelly so essentially they issued the judgment here that they strayed from the timing here that Elon Musk waited too long to sue. Therefore, in this case, OpenAI comes out victorious. They did not have to go and look through all the nitty gritty of all of these, the rest of the case, because this was the big one. Kelly. They had to decide if he basically filed this lawsuit on time. The jury deciding no in this case. So Elon Musk did not file the suit on time. Kelly I should mention though, this is an advisory jury, so the jury or advisory case here. So the judge actually has the final say in this lawsuit. She will take this jury decision into consideration when she makes her final judgment. We're not clear on exactly when that will be coming. Legal experts tell me that it could take a month, it could take multiple months. We expect to get more color from the judge inside the courtroom here in Oakland. But that is the verdict for now, Kelly. We expect to get more from this. But they again decided Elon Musk just simply waited too long to file this lawsuit. Back over to you.
- [32:00]
Kelly Evans
Look, you're answering my question, which is, isn't this very quickly that this is already this verdict has been reached? Like you said, it's an advisory jury. This is not, not final. They're basically, you know, giving their advice to the judge who will then take it into consideration. So you've said they decided that OpenAI prevails because Musk waited too long to bring this suit. Now, if this is taken all the way and the judge goes with it, that means the IPO is on. No, no damages that, you know, investors would need to worry about. Musk had really played this up going into the trial. He said Sam Altman was going to become the most hated man in America. So I'm curious, I don't know if, you know, or maybe the judge will address this, Kate, when she, you know, kind of goes over this verdict, will she consider the merits of the case or if the jury has said simply they didn't move in time, will she leave it there as well? Or will she go into all of the detail and then decide if there's some merit to it?
- [32:56]
Kate Rooney
So from what I'm told, the judge typically rules in line with what the jury decides. So she will sort of look at this, look at the merits of the case case separately and take into the the jury's decision into consideration. So there is a chance from what we had heard leading up to this, that she could decide differently on the statute of limitations. But typically the judge tends to rule in with sort of in line with what the jury decides. So there's a chance, she says, actually, you know, I come to a different legal decision and then she'll consider the rest of the bulk of what we've heard about and some of the other claims by Elon Musk. But typically in these types of cases, they tend to rule in line with what the jury has come up with here. And that really was coming into today. We were sort of thinking of this in steps. And step one was, did Elon Musk file the lawsuit on time? The jury saying, no, he did not. There is a three year statute of limitations in California. And their argument, OpenAI's argument in defense had said you know, if you knew about this, if you knew about all of these alleged, you know, stealing a charity, you would have filed the lawsuit. Closer to 2019, closer to even 2017, when some of this was being talked about. Their defense was that you are now filing this lawsuit, Elon Musk, we're talking about here because it is now convenient, it's suitable to you because you run a competing AI firm. And along the course of three weeks here, and what we've heard from witness testimony, a lot of it has been damaging to Sam Altman. There has been a lot of what OpenAI's legal team said was irrelevant. They've said, yes, there have been personal attacks on his leadership, but that did not, not really come down to the legal merits of this case. But yet, you know, a lot is spilled out and there's gotten a lot of headlines. This has been such a closely followed case, especially in Silicon Valley. We have just gotten a lot of, we'd say, drama over the past three weeks. Despite this really being a nothing for OpenAI. When you look at the actual legal changes, as you mentioned, they can go ahead with the ipo, Nothing is really changing in terms of the substance of what this company is going to look like. And so I'm sure a big sigh of relief, relief from the Open AI team today.
- [34:54]
Kelly Evans
I mean, somewhat shocking this quickly to know the answer.
- [34:59]
Kate Rooney
I mean, two hours. What?
- [35:00]
Kelly Evans
Wow.
- [35:00]
Kate Rooney
Yeah.
- [35:01]
Kelly Evans
So the one other thing you mentioned, Kate, is that traditionally, even after this opinion by the jury, this advisory jury is given to the judge, the judge might still take about a month, is that right?
- [35:12]
Kate Rooney
That is what we have heard is typical with these advisory juries and, and the way that this usually works. One of the reasons I'm told that they do this is the judge. It's such a high profile case. The dollar amounts are so big that they sort of COVID almost. It's helpful to have the jury to say, you know, this is what jury of your peers would have decided. And typically, I think nine out of 10 cases, based on some of the legal experts and what they've told us, they tend to typically rule in line. Although she is able to technically look at the merits separately and may come to a different conclusion, there is a chance that she, she decides differently. But, but I would say historically that is what we've heard. Although these advisory juries are pretty rare. I think because this is such a high profile case, that is why we have this setup where it is not, you know, you think of the same bank, but freed or a criminal trial where you run out with the actual verdict. This is a much more nuanced, sort of slow rolling case that we're getting here. I guess it goes without the indication. Is that OpenAI right?
- [36:09]
Kelly Evans
No, sorry, Kate, I was just going to say, I guess it goes without saying in the case of Microsoft, which was in some ways a co defendant here, I don't know if the shares are responding. They were up about a quarter percent at last. Check.
- [36:18]
Kate Rooney
Check.
- [36:18]
Kelly Evans
This would presumably mean they're off the hook as well.
- [36:22]
Kate Rooney
Yeah, exactly, Kelly. And so they were accused of aiding and abetting in this breach of charitable trust. But if they miss the statute of limitations, if they, they miss the window to sue, that means that Microsoft is off the hook again, if the judge long term rules the way this initial
- [36:37]
Kelly Evans
jury did, going back to the time frame, now that the time frame is kind of the crux of the matter. Musk had sued in 2024. He helped start OpenAI in 2015. He left the board three years later. And the statute of limitations in California is three years.
- [36:54]
Kate Rooney
Kelly. We did also, I just want to bring you news. We did just get news that it is not months. We just got an official decision from the judge that she agrees to the jury and the lawsuit is dismissed. So that was quick. We had heard months, you know, that came out within minutes of the jury's decision. So clearly she felt similarly. And she had looked at the merits case. Obviously she has been overseeing this over weeks and she has had all of the background. She didn't need, you know, more than a couple minutes to rule in favor with what the jury decided as well.
- [37:25]
Kelly Evans
Wow. Okay, so. So if you're just catching up with what's happened here over the past couple of moments.
- [37:30]
Kate Rooney
Yes.
- [37:31]
Kelly Evans
So we found out about 10, 15 minutes ago that the jury, which is an advisory jury, had decided, had found that Musk did not file his lawsuit within the statute of limitations. And therefore OpenAI prevails against Musk in court. That was the jury, advisory jury. And Kate, as you were saying, okay, it's up to the judge now. And as of now, the judge has already come out with her ruling, agreeing with the jury and declaring then. So there, remember, let's. What was at stake here? OpenAI is racing Anthropic to go public. OpenAI also has a little bit of a question mark around its kind of founding purpose. It had to make this big switch over to becoming a for profit. It's trying to get this IPO off the ground. If Musk was found to have prevailed, they could have owned him owed him billions of dollars at a time when there's financial pressure on the company. We've been talking a lot about this. It's a very big deal for OpenAI, Kate, if they have prevailed here, it's
- [38:20]
Kate Rooney
a huge sign really. But don't mind the wind out here, Kelly. It's. But it's a huge sigh of relief. The remedies that Musk was looking for, I mean, this would have been worst case scenario for OpenAI. We lay it out for a second. He was seeking up to $130 billion in damages. That was one. The other one was that Sam Altman, the CEO, could have been removed from his leadership position and the restructuring that happened in the fall, all could have also been unwound. So when you look at that potential outcome and what Musk was actually looking for in this case, if that had gone through, there are, I mean, a million implications, including the fact that this now $850 billion company probably wouldn't have been able to list on time or to look to go public at a time when it is competing fiercely with Anthropic, another big rival that came up in this court case. The co founders of Anthropic were also founders at OpenAI. So there is this overlap between all these AI executives in Silicon Valley names. But the team for OpenAI is able to move forward with an IPO. They are able to put this behind them. Although in the meantime there were some really damaging comments made about OpenAI and Sam Altman's leadership. So in terms of the long term impact and the implications here, it is more that there were hits to Altman's credibility. There were reminders of some of his leadership shortcomings that we've heard about throughout the years and had sort of been buried. They were very much in the past past. They were brought out again and talked about at length in this lawsuit. And I would say that is the, the takeaway and the impact really for OpenAI as we talk about it now.
- [39:45]
Kelly Evans
Wow. Kate. We have Alex Kandrowitz on the Newsline. He's the author of Big Technology. He's one of our CNBC contributors. Alec, what's your reaction to this news?
- [39:54]
Alex Kandrowitz
Well, it's an absolutely massive win for OpenAI. And what shouldn't be discounted is the fact that this happened quickly as opposed to cases that can drag on for a while. The court clearly found it important to expedite this case. We're in and out and month and now OpenAI has a road to IPO. Of course, SpaceX run by Elon Musk will probably go out before it. But the big stumbling block that could have really hurt the IPO pass for OpenAI is now gone.
- [40:21]
Kelly Evans
How much do you think. What do you think the timeline is, Alex? And are we making too much of this race? Or do you really think they and Anthropic are vying behind the scenes to see who gets to go first now with this ipo?
- [40:32]
Alex Kandrowitz
I do think that they're buying behind the scenes to go first. It's very important to go first to set the narrative, to also get access to the capital, because these are going to be massive IPOs, potentially $3 trillion IPOs in a row. The timing could be end of this year, early next year, depending on how quickly the teams can get their, you know, the game into action. But again, if you were OpenAI, if you were in the middle of figuring out how to, you know, handle these remedies that were supposed to go to Elon Musk, or, you know, potentially even losing some of your key executives because of a court order, you don't have to deal with that anymore at this. And there's also the moral victory or side of things where they have seen Elon Musk in court, they've beaten him in court, and now, you know, no matter what happens, a lot of his accusations are going to fall a little bit flat after he gave them everything he could muster and they still won.
- [41:29]
Kelly Evans
If there's anyone else who believed that OpenAI was a bad actor here, Alex, are there's no other outstanding court cases or an area where this would be litigated or hold up the ipo, as far as we know, is there?
- [41:41]
Alex Kandrowitz
It doesn't look like it. I mean, those that, you know, potentially might end up in legal action with OpenAI. It's funny, it seems like some of the partners like Apple or Microsoft might not have been thrilled with the characteristics and the way that their executions of the agreements with OpenAI have been carried out. But ultimately, these are partners, especially Microsoft stands to gain from OpenAI. So I would say after this really is smooth sailing towards the ipo. Of course, you know, now that they're going to go to ipo, those numbers and in the documents will matter. And we'll see if investors, investors are going to, you know, sort of pause when they see all the money that's going to be spent. There have been reports that even The CFO within OpenAI hasn't been thrilled with the capital commitments there. But now it really becomes a fundamental business story as opposed to is this something that was a charity but now is converting to a business and, you know, may not actually make that move. That question has been answered.
- [42:33]
Kelly Evans
All right, Alex, we're going to go back to Kate Rooney, who's in front of the courthouse with more reporting for us. Kate?
- [42:38]
Kate Rooney
So, Kelly, there's chatter inside about a potential appeals process. That is typically the next question. This, what is the appeals going to look like? The judge said she finds substantial evidence to support the jury's finding and she's prepared to dismiss an appeal on the spot. So we could get a very swift conclusion in this and not have the typical drawn out appeals process. I would also bring you some color from our team inside the courtroom who said OpenAI, Microsoft Council are hugging. They are slapping each other on the back and really celebrating inside the courtroom for what has been weeks and weeks of this and, you know, more than a year. The original lawsuit was filed in 2024. But it seems from what we're hearing, a swift conclusion and a celebration by the Microsoft and OpenAI teams inside the courtroom.
- [43:23]
Kelly Evans
Kel, Alex Cantrowicz is standing by. Alex, just a quick final one before we let you go, which is you mentioned right before this that there we have learned a lot about some of the issues with OpenAI throughout this trial. Does any of that leave a stain on the business, on the ipo, you know, in a way that today's win, notwithstanding, the hugging Kate was describing notwithstanding, does it still actually leave some lingering challenges for them?
- [43:47]
Alex Kandrowitz
I think if this was the first time that we were actually hearing of OpenAI having some internal turmoil, then the testimony that we heard would be especially damaging. All the drama within the boardroom without the boardroom between the executives, not something you want, especially when you're an investor thinking about putting that much money into a company going public. But the one thing you could say is we knew a lot of this already. All of this has played out in an extremely public way. And, you know, we have, we have some more detail, which is great. It's juicy. It's going to make for some great books. But does it fundamentally change your perspective on the company? I don't think so. Despite all this, they've continued to execute.
- [44:25]
Kelly Evans
All right, Alex, thanks for now. Appreciate it. Alex Cancerwitz, let's bring in Gene Munster of Deepwater Asset Management. Gene, I know you were watching this trial as closely as the rest of us. What are your thoughts and reactions here now that we've learned? Just to recap for our audience, first, the advisory jury. And somewhat of a surprise on this Monday afternoon, came out right away and said they found no basis for Musk charges to move forward because he didn't act within the statute of limitations. Just a few moments later, the judge agreed. And to Kate Rooney's comments a moment ago, in terms of an appeals process, the judge has apparently moved to dismiss an appeal on the side spot.
- [45:01]
Gene Munster
Yeah, it's definitely pretty swift. I would draw a line between theater and then substance. And on the theater side, we've got this, this trial that's been going on. And on the substance side, we had shares of OpenAI basically trading at premiums to its last $850 billion round and the secondary market while the trial is going on. And so my sense is that most investors thought that it was going to play out this way. My sense is also that Elon really wanted to make a statement more than he really thought that he was going to win this. And the statement is that he is number one disappointed that OpenAI has gone the course that it has. But also he's making a statement that he wants to really be the player in AI. In fact, that's part of the theater. The substance part, I think that most, most people should take away from this is that this does open up the window for OpenAI to go public. Yes, Anthropic, there's going to be that race. SpaceX, from my perspective, is not going to go off as a space delivery company. They may position themselves as that. I think the street is generally going to think about this as a vertical AI company, a sovereign AI company, which puts it directly in the scope of open AI. And so I think the substances, we're still early in AI. These companies are all going to benefit and we've had some theater around what's going to be a spectacular ipo, one or two years ahead of us, one
- [46:36]
Kelly Evans
or two years away. You still think?
- [46:38]
Gene Munster
Well, I think that the next one or two years we're going to have several AI first companies. You know, these anointing companies go public. As far as, you know, the timing, you know, whether it's late this year, early next year, it's, we're pretty much there. And as far as I think from a point public investors perspective, you know, as Alex mentioned, you know, we're going to have $3 trillion, 2 trillion, you know, probably 5 trillion in market cap on these AI first companies. Throw Andre in there, it's going to be just a very exciting one to two years, I think, in, in total. But big picture is the theater is now done. Now we get to the substance of seeing what these companies can do to really build massive businesses around AI.
- [47:22]
Kelly Evans
Alex, a moment ago Gene mentioned, said could there be anything else kind of still out there in terms of litigation against OpenAI? You know, obviously there's nothing we see right now. But he did mention some frustration on the part of some of their partners, whether it's Apple or Microsoft. Do you have any comment on that?
- [47:39]
Gene Munster
Yeah, I don't, I don't think we're going to see much more litigation at this point. I think, you know, the, I think that the decks are cleared at least between those two parties and let's see if anything pops up within the traffic.
- [47:51]
Kelly Evans
All right, Gene Munster, thanks for joining us to react to this. Big news this afternoon. Thanks. Really appreciate it. Again, big news there that Elon Musk has lost his court battle against Sam Altman and OpenAI after the three week trial. The verdict from the jury and from the judge this afternoon sounds for now pretty definitive. In the meantime, it's been a rough start for new Fed chair Kevin Warsh as rates continue to rise. When he was nominated in February and was pretty vocal about rates cuts, the 10 year yield was around four and a quarter. Now we're basically at 4.6%. Some on Wall street are predicting hikes, including Ed Yardeni who now sees one coming in July to fend off the bond vigilantes. Aditya Bhave is B of A securities head of US Economics. Aditya, great to have you back. Are hikes in your forecast?
- [48:37]
Aditya Bhave
Good afternoon. Thanks for having me on. No, hikes are not in our forecast. We've been saying for the last couple months that the tails are fat and there is a significant probability of rate hikes. We stick with that view. We wrote that there's about a 20 to 25% chance that the next move will be a hike. And I think I'm very comfortable with that code right now.
- [48:58]
Kelly Evans
So the comment from Ed Yardeni is that basically the bond market is testing Warsh a little bit. In order to keep this uprising from going any further, he might need to hike rates.
- [49:10]
Aditya Bhave
I think what the bond market is reacting to and there's been this shift in the market narrative from stagflation to reflation and I guess get it okay, inflation has beaten expectations significantly and not just because of energy prices. Earnings are booming, stocks are doing extremely well and the consumer has been resilient. But on the other hand, my counter to that would be that we knew there was going to be a fiscal impulse in the first few months of the year. We knew that tax refunds would be very supportive for consumer spending in February, March, April, and if anything, one can argue that the inflation adjusted spending numbers have been a little bit softer than what you would have expected, probably because of the impact of higher gas prices. So the test of consumer resilience, of labor market resilience, that will tell us whether we are in a stagflation paradigm or a reflation paradigm that's gonna start in May and then continue on for the next couple months as the fiscal impulse fades.
- [50:08]
Kelly Evans
So what is your Fed forecast right now?
- [50:11]
Aditya Bhave
We don't have the Fed doing anything. We have them essentially sitting on their hands through the second half of next year. We put a couple of cuts into our forecast for the second half of next year, but I would say very low conviction of on that.
- [50:24]
Kelly Evans
So no news until the middle of next year. Final question on this front, if this is another point Ed Yardeni was making, he said, look, obviously the President wants rates down, not up, but he probably would be happy with the 10 year going down and not up. So I hear what you're saying about growth versus inflation, but is there a case to be made that you tighten policy on the margin, the 10 year probably falls and that the President might be happy with that? Certainly it would help the housing market.
- [50:50]
Aditya Bhave
It's certainly possible that rate hikes could keep a cap on the 10 year rate and maybe we'll head in that direction again. I think if we end up hiking rates, it's not going to be so much about the tenure. It's going to be about where is inflation headed, where is the labor market headed. And I think the trigger for rate hikes is going to be if the labor market starts to reaccelerate. As long as the labor market is where it is right now, where it's a little bit soft, you can say, okay, we're balancing our two mandates, labor's a bit, inflation's beating expectations by a little bit. But if you had three and a half, almost three and a half percent inflation, with a labor market that's now tightening, unemployment rate that's now falling, then both of your mandates are pushing you in the same direction. And I think that would be the trigger for rate hikes. So while we don't have any further moves in our forecast until the second half of next year, I would just emphasize that the tails in both direction are very, very fat. And you could see the Fed hiking a bit. You could also see meaningful cuts if indeed activity rolls over with a little bit of a again, as Fiscal stimulus fades.
- [51:54]
Kelly Evans
Quick final question on this point. I mean it does feel the last couple of months. Tom Simons was saying this last week as well and he has two cuts in his forecast still. But he said look, I have to acknowledge it looks like the labor market is reaccelerating a little bit.
- [52:07]
Aditya Bhave
The labor market for us is really stable. If you look at the last jobs report, private payrolls seem to be re accelerating. In fact one thing that we found really striking was that the four month average of private payrolls to start this year, 86,000, that's the fastest rate since December of 2024. So if you look at that the labor market might be re accelerating but then look at wage inflation. Wage inflation looks very, very benign. If anything it's moving down. The unemployment rate just flat as a pancake for the last several months bouncing around but no significant trends. So I think what you would really need to see to conclude that labor's re accelerating because of the fluctuations in supply as well as demand would be one either the unemployment rate starts to fall and I think if you get to 4% or lower they're going to have to almost have to hike. Right, right. Or, or, and, or you would need to see wage inflation pick up.
- [52:57]
Kelly Evans
All right. It all goes back. You know we like, we like to make a big thing of the job report but really so much is hanging on it. Adiya, thanks for now. Really appreciate it. Adiya baby. With bank of America against that backdrop we're gonna hear from a lot of consumer names this week. Target and Walmart are reporting earnings. Both stocks have done quite nicely in the face of the Iran war, outperforming Amazon. Amazon Target up 25% Jan Niffin is CEO of J. Rogers Niffin Worldwide. Although I know you're not big on Target. Jan, it's good to see you again.
- [53:26]
Jan Niffin
I'm not big on Target but I am very big on Walmart, the best retailer in America. And Target has gotten better and we've seen it in the stock price. But if you just look at the relative performances, Walmart will have twice the store for store sales that Target has this time. And Target should be better. They should be in their prime their getting apparel sales. Fashion's important but Walmart's taking that $100,000 customer. So it's going to be pretty tough if your Target going forward.
- [53:53]
Kelly Evans
Yeah, so what is we were just speaking with Aditya about you know, consumer. The economy's held up okay, but we don't hear a lot of people come on the show and pound the table for consumer names. Still a company like Walmart, they're practically a tech stock at this point in terms of their returns, the consumers and pretty good shape.
- [54:11]
Jan Niffin
Yes. If you're at the bottom end of the distribution you're struggling and if you're dealing with that customer you're struggling. But it sure isn't hurting Walmart. It has hurt the dollar stores a little bit. But if you look at the middle of it, you know, if you look at Ralph Warren and Aritzia and people in that space tapestry their customers fine and the upper end customers fine. We're seeing pretty good customer because of jobs, Jobs, jobs. Just what your last guest said. They've got a job. They think they'll keep their job and if they lost their job, think they could get another one. As long as that's true, they will keep spending and as long as wages raise at about the price or the rate of inflation, they'll keep spending. They'll keep spending until something happens to stop them. And the price of gas currently will not stop them. They don't seem to care as much about the war as maybe the rest of us do. And so the consumer staying with us. We haven't seen any slowdown really in May and we could see, see this start running out. As far as the excess refunds we're getting on taxes that are sopping up what the gas is taking away. But they're continuing to spend here in May so it has not slowed them down.
- [55:23]
Kelly Evans
What do you make of Berkshire taking a stake in Macy's?
- [55:26]
Jan Niffin
I was a little surprised. You know, I think Macy's is doing a much better job than it's done at any point in time in the recent past. I think they're running the business better. They've rights sized. The whole department store space is right sized so maybe it makes sense. You know, they've always been good about picking people who are nearer the bottom than the top and then just writing them up and you know there's room for department stores in the country. There just wasn't room for all of them that we had. But Macy's is down to about 350 full line stores. That's probably supportable across the base.
- [55:58]
Kelly Evans
Yeah, I still see empty Lord and Taylors and I think they're advertising that they could become healthcare offices, you know
- [56:04]
Jan Niffin
and I was my fault.
- [56:06]
Kelly Evans
Yeah, that's true. No, we all miss, you know, it's. But we, we shop online on Amazon these days. So Anyway, Jan, it's going to be an interesting earnings P they better not screw it up the retail. That's all I'm saying. We're at 25 or 28%. Okay. We want to keep it up there. Thanks for making the time. Appreciate it. Jan Niffin with Jay Rogers Niffin Worldwide. And that's it for us on the Exchange. I will see you for Power Lunch after this quick break with an exclusive interview with Delta Cell CEO Ed Bastian. Speaking of the consumer and fuel prices, we'll talk about that and a whole lot more. Stay with us. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place
- [56:50]
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