Kelly Evans (2:52)

What's today? April 24th. So you're telling me you now think that Warsh could take office on.

Steve Liesman (2:57)

Yeah, I think just technically I believe that Powell's Last day is May 15 as Fed Chair and that I guess it would be the following Monday that I'm not sure about the sequence of.

Kelly Evans (3:07)

So this coming Wednesday could be Chair Powell's last.

Steve Liesman (3:11)

That would be this coming Wednesday. That would be 1, 2, 3. It'd be the Friday would be the 15th of a three weeks from now.

Kelly Evans (3:20)

Right. But this coming Fed meeting, this would

Steve Liesman (3:23)

be his last one. I'm sorry. Yes.

Kelly Evans (3:24)

Could be his last one, which we were thinking a few days ago, that he might be de facto chair or involved somewhat for possibly months.

Steve Liesman (3:31)

Yeah. And we could just take the last three minutes that I've wasted a viewer's time and boil it down to get ready for a wash chairmanship sooner than you thought, Jeff.

Kelly Evans (3:39)

What are the implications of that? Because immediately we look to the bond market and there's not much movement. You look at the 10 year, we're down a couple of basis points. You have to look at the two year for about a five basis point drop. I would have expected something much bigger.

Jeff Kors (3:51)

Really? No change in Fed policy outlook, but I think it is still significant. As you mentioned, it clears the way for the WASH candidacy to clear through, number one. Beyond that, it allows the Fed to focus on what they should focus on, monetary policy, not defending a criminal poll. Number two, it helps clear the air of a taint on the Fed interference between the executive branch and the independence of the Fed. Let's get rid of that. And number three, I think this kind of thing, these kind of investigations discourage good people from joining the government. And that's something we in the markets shouldn't want. We want the most talented people to work at the Fed.

Kelly Evans (4:28)

We also learned today, and this is going to kind of now set the broader backdrop economically for what war will have to decide. Here we've learned consumer confidence. Terrible. Kind of as we expected from that initial reading a couple of weeks ago. GDP still okay, investment still strong. The ESM numbers have been great. No sign of an uptick in people filing jobless claims and so forth. What should Fed policy be right now?

Jeff Kors (4:50)

I think Fed policy should stay on hold. I mean, Bush still has a bias towards easing. I think that's appropriate given what we at 5th 3rd expect in terms of productivity gains but that's a big unknown nonetheless. So it's a wait and see policy.

Kelly Evans (5:03)

Steve, what would you add to that?

Steve Liesman (5:04)

Well, I want to show you the Fed probabilities and this is warning boring chart. A very boring chart.

Kelly Evans (5:11)

I think people love this chart. I beg to differ.

Steve Liesman (5:13)

Well take a look here and what is the place where nothing, nothing ever happens. Is that a talking head song? So take a look. 96 probability of no change. The June meeting washes first meeting and then you go along. What do I have there? December and March, 7-20-27 it's still only a 50% probability. Now I would be suspect of this if I didn't also do what you just did which look at the 2

Kelly Evans (5:41)

year but 1 second before you do this up so leave that up again. This is this June, December, next March, next July. So more than a calendar year from now the market is saying 5050. We might not have another rate cut for another 50.

Steve Liesman (5:53)

50. 50 that Kevin Wash we who we thought was going to come in and do the bidding of the president. Some combination of the economics and the feelings of the people on the committee irrespective of who the chair is now

Kelly Evans (6:04)

can he shift monetary policy enough by this broader thing we can get into. We've gotten into but a combination of deregulation, you know, bank changes, whatever, can that do enough to shift the stance the balance sheet or no?

Steve Liesman (6:20)

It's a very good question. And what we know what Kevin Warsh has said he wants to do, reduce the $6.7 trillion balance sheet, which is about 21% of GDP. I say that because I got a chart on that too. And bring that down and then be able that's a tightening okay depending upon what happens on the deregulatory side. Part of what banks hold in reserves they hold for regulatory reasons. If they reduce the regulatory reasons for that. So there's the decline in the balance sheet percentage gdp. We don't know what number he wants to bring it to but I've heard numbers like a trillion or 2 trillion being brought off but be able to lower rates in response to that. My question about that is how much lower can you bring rates? If you think right now and I'm fascinated by Jeff's idea about this, Jeff's thoughts on this. But you bring rates down now let's see, you got a 3% underlying inflation rate. You got a 3.62 nominal rate. It means you're point six to real. What should it be? Zero. Is that what the argument is, I

Jeff Kors (7:18)

mean, let's face it, the Fed has missed its target for five years now and that's going to be a limiting factor. But I think it's important to note that Wash has talked about essentially moving the goalposts, changing some of the inflation metrics, using a broader interpretation, using some of the trimmed end statistics produced by say the Cleveland Fed and the Dallas Fed. That's important. We at Fifth Third have believed that the Fed has the wrong target. Two percentage of the wrong target was set back in 2012. That was a time of bringing down balance sheets, deleveraging balance sheets. It was a time of lots of global labor slack, particularly in developing countries, ultra cheap labor that's no longer in place. 2% is the wrong target target. 2 ish is probably the right target.

Kelly Evans (8:01)

So you think the country's inflation target should actually be a little bit higher

Jeff Kors (8:04)

than 2 should be higher or more flexible. And I think so. We had argued prior to the blow up with the President and Fed Chair Powell, which politicized it, that we had argued the Fed should change its goal. I think what Warsh may be doing is changing the goal posts instead.

Kelly Evans (8:23)

Understood, but do you even think that changing the goal is a prudent thing to do when people are so your colleague or your colleague on the Fed. But Beth Hammock of the Fed said this the other day that we had a decade's worth of inflation in five years. And so when I hear about 2ish, I, it makes me feel frustrated because I don't want to. That means, you know, more and more

Jeff Kors (8:43)

the question is which is more important for the Fed's credibility? Staying with a goal that maybe is the wrong goal or missing that goal for over five plus years.

Kelly Evans (8:52)

But, but it's unfair to lump the COVID experience together with what's happening now.

Jeff Kors (8:57)

No, but there are structural changes in the global economy for sure and particular around offshoring. That offshoring play, which was disinflationary, is gone. And I think, and I think that that really changes the structure of what we should expect.

Steve Liesman (9:11)

I think there's two different rationales behind the goal. One is what is the right goal for the economy to have, you know, optimal inflation target. I think the other thing is there's an operational issue which is, I think what Jeff's talking about is something that I've advocated before, which is the Fed going to a range, let's say one and a half to two and a half. And that kind of backs off some of the pressure off the Fed to Move. And the question would be, would Kevin, where say, look, here's what we're going to do. If we're above our range for X amount of time, we're going to act, but we're not going to act and get too excited. If we're within that range, it could be two to three. Now, one reason why the Fed has not come off this target is because you don't want to come off the target before you hit it. And then you act like you don't really, the credibility of your target is undermined.

Pierre Ferragu (9:56)

Right.

Steve Liesman (9:57)

It may well be that Kevin Warsh coming in as the new chair has

Noel Wallace (10:01)

the

Steve Liesman (10:04)

impression, the ability to just say, look, I'm the new guy, this is our new target. And so because of the change in leadership that he can then change the target to a range.

Kelly Evans (10:15)

Just a parting thought, Jeff, and comment on this is he could easily take a stance that says, you know, these, this inflation number is kind of missing the forest for the trees right now. There's so many other cross currents going on. But he instead took, and Steve and I were talking about this the other day, he said the Fed must take responsibility for the inflation number. So he didn't try to dismiss it and say, could be tariffs, it could be what are we living through energy price pressures? It could be this, it could be these, these factors that we have to. He said the Fed must take responsibility for it, which I thought was a pretty hawkish remark, suggesting that he's not going to try to excuse his way out of these price pressures.

Jeff Kors (10:53)

I think that's also part and parcel of his mission to get the Fed to stick to the basics. They have two mandates, of course, that's one more mandate than many central banks already have. And ownership of inflation is clearly a core mission of the Fed. I think he's reiterating that rather than reading in a hawkish or dovish bias.

Steve Liesman (11:11)

He's very serious about the Fed's responsibility for the inflation rate. He's a no excuses dude when it comes to that.

Kelly Evans (11:18)

Agreed. I just don't know what you do about it then because basically he's saying then if he's like, we must take responsibility for it, it's above target, then he's implying that the Fed should have a policy response to that. And I just. The question, only question then is do you raise rates or do you tighten through some other means?

Steve Liesman (11:35)

And how much, looking through, do you do?

Kelly Evans (11:36)

Right, exactly.

Steve Liesman (11:37)

Which raises the question for many, many, many, many more shows, which is, is Warsh ultimately hawkish or dovish Right.

Kelly Evans (11:43)

We have, I think 15, I don't know, or more to debate that. I don't know now that we' potentially for, for his ascension. Gentlemen, thank you both. Steve, I'll see you in just a moment. We have a lot more to discuss. And Jeff, thanks as well. Appreciate it. The path to resolve one conflict at the Fed may be paved, but meantime, talks to resolve the US Iran conflict are also back on and that's got the markets in a positive mood today. But have they already priced out both of those in terms of the positive results that we could get? Drew Pettit is US Equity strategist at Citi. Drew, it's good to have you here and we're ending the week on a pretty positive note.

Drew Pettit (12:18)

Yeah, look, I think we're looking through a lot of the conflict, a lot of the messiness in Washington around the Fed and rates and we're starting to think about fundamentals again. Now, look, we expect earnings to be good. We think this year is going to be a strong earnings year in general, really supported by the secular trends in the economy. There's a little bit of weakness and concern on the cyclical side. But again, markets are starting to look out the other side.

Kelly Evans (12:44)

Can we talk about Nvidia? And I have a note here says you like Nvidia, you like Micro. I mean, there's a bunch of different things in here from Teradyne to Rockwell to Eaton to CrowdStrike, Palantir Lilly and Boston Scientific. But Nvidia popping 5% today tells you

Drew Pettit (12:59)

what the semiconductor story is real. It's, it's real in memory. It's real in more advanced chips. The AI buildout, honestly, the choke point, the supply choke point is chips. And we think markets are going to keep rotating to those supply constrained areas. Semis is a really easy place to go. Margins are expanding, sales are growing faster than assets. And that's true of a lot of the infrastructure build out as well.

Kelly Evans (13:26)

Can we still think about semis in the traditional way as a leading indicator for the broader markets in the economy?

Drew Pettit (13:32)

That's not how we're thinking about it. It's not a cyclical story to us. It's a growth story. I think you have to disentangle those two narratives. And again, it's about build out. It's about AI that we think has legs.

Kelly Evans (13:45)

But why wouldn't that mean positives for the rest of the market and the rest of the economy?

Drew Pettit (13:51)

So it's because their buyers aren't really rate and cyclical sensitive. So their buyers are the hyperscalers that have a bunch of cash, that have really clean balance sheets that can really eat those cost pass throughs. But when you look more broader in the cyclical economy, I don't think consumer companies can push along price and inflation the same way the industrials and the semiconductors can to their buyers. So it's about who is buying from them that makes them less cyclical Right

Kelly Evans (14:20)

now I just wonder if all the investment dollars flowing through the AI economy ultimately will make their way through the jobs market which makes its way into consumer pocketbooks and wages and spending. I mean if the money is not being hoarded, isn't it going to be spent and benefit the rest of the

Drew Pettit (14:36)

economy while showing up in earnings to start? So the transition mechanism isn't one for one. Yeah, it will show up in, in wage inflation, in different types of jobs, that's for sure. We've, we've seen that for a while. People have talked about supply constraints and in more blue collar and physical work we get that. But that's going to accrue to companies first before it starts feeding through to us. You're looking at, you know, wealth effect supports consumers, we get that. But more broadly it's not really the cleanest labor market. Read if you talk to our economists.

Kelly Evans (15:09)

Understood. Want to ask you about a weaker spot of the market right now. You do like Palantir, but I was actually going to put it in the defense context where those defense names are down like nine sessions in a row. And yes, they have a lot of pressure from the government to ramp up their output and that's never a great spot to be in. But what's the impact do you think for, for kind of equity holders and is there anything larger to take away from that other than just be careful of being in that sector right now.

Drew Pettit (15:37)

App goods priced in a lot of expected growth and the defense names fall in there. And look, they can't really push price because their supplier, or sorry not their supplier, their buyer actually has a lot of power in this instance. So if their input costs go up again, they're not passing them through. So when we think about the industrials opportunity, we're looking for companies that can pass through cost and really hold up margins. And again I've said this, grow sales faster than assets. I want profit expansion, I want efficiency. I'm not sure we really get that in the defense story. Even though the headlines would make you think people should rush to that space.

Kelly Evans (16:16)

Exactly. So you like, as you've reiterated, semis, you like the banks broadly and the select industrials we mentioned invent electric ticker. NVT is not one we talk about a lot. You've got Rockwell in here, Eaton and Flow Serve so those you think stick out to you and the sector there looks better than software and consumer. So you're not looking to pick up, you know, ServiceNow for instance?

Drew Pettit (16:38)

No, the software names you mentioned, CrowdStrike and Palantir are a couple of names that stick out to us because they actually have pretty good cash flow relative to the spending they've had. I think if you're dealing with a messy area where you have a lot of question about terminal multiples and long run profitability, I think I want to bet on the names that have a lot more cash that can pivot and adjust during all that potential disruption. So to us kind of limited names but again cash is king if you're going to look through some of the near term noise and who can survive potential disruption.

Kelly Evans (17:15)

All right. And still seeing a path to 7700 on 320 of EPS this year for the S and P. Drew, thanks very much. Appreciate it today. Take care Drew Pettit with Citi coming up. Intel's big earnings report has the stock at a record high and on pace for its best month ever. It's also sending shares of AMD and ARM holdings to all time highs. Which is your best buy right now. But first we're getting ready for the busiest week of earnings season with five of the MAG7 set to report, including four of them on Fed Day. The trades ahead of the numbers ahead on the Exchange. This is the Exchange on cnbc. Your data lives everywhere on prem in the cloud across apps. Bring it all together with Everpure, the platform that acts like a living system, delivering the latest in data, performance, security and innovation without ever slowing you down.

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Kelly Evans (19:26)

Monster rally in the chip stocks has pushed Nvidia back above the $5 trillion mark for market cap. It first crossed that milestone back in October. The rest of the Mag 7 a little more mixed as we await earnings from several of them next week. Amazon, Alphabet, Meta and Microsoft all report on Wednesday, followed by look at Apple sitting there all alone on Thursday. As we await those results, CNBC contributor Jeff Kilberg is here on set with me. He's the founder and CEO of KKM Financial. It's good to see you.

Jeff Kilberg (19:53)

Great to be here, Kelly.

Kelly Evans (19:54)

I give you a little pat on the back when you're due. Like with intel, before we actually get into the Mag 7, would you be looking now to exit the intel trade and should the US Government be looking to do the same thing? I think we're $5 billion in the green on it.

Pierre Ferragu (20:05)

Yeah.

Jeff Kilberg (20:05)

They've quadrupled their investment. So I can't speak for the administration, but what I can speak is for the essential 40, which is the ETF that I own, that we own it in. We are not trimming the position. This is the same question when you asked me, it was at $52. There's more room to run. So it is remarkable to see. This was up 85%. Intel's up 85% last year and here we are over 100%. So you have to be cautious and be considerate. But at the end of the day, this is a theme. This is momentum, Kelly. I want to own it.

Kelly Evans (20:28)

Are you going to own it kind of forever, quote, or then what exit point are you looking for?

Jeff Kilberg (20:32)

So we're going to rebalance. So we want to. We believe this is an essential name when you talk about what's important to the US Economy and the American way of life. That's why we own it in the Essential 40, because this is a US chip maker. I got laughed at for saying that three years ago on air. But it is essential. And all of a sudden the tariff app, you've seen the tariff really change the dynamic. Their foundry business, which was not making any money, is going to produce $3 billion next year. And now it's a template. So we want to own essential 40 this name specifically intel moving forward. But we will rebalance when we have the opportunity. But I don't see the momentum.

Kelly Evans (21:01)

What do you mean when you have the opportunity? Like so it's. Let's call it at 80. Are you waiting for a 90? 100. I know you look at kind of trading signals within that to see if it's overbought or things like that. But I just. That's what I mean aren't we get. When all of the news media is talking about intel, doesn't that make you a little nervous?

Jeff Kilberg (21:18)

It does. No doubt about it. But at the same time the sentiment was so poor when it was at $20. It was under $20 when we saw the US government take that stake. And I don't agree, I don't disagree. I don't really opine on that government position. But the end of the day will they liquidate that position? I want to know if that's happening because it's near 11% position. But right now we still want to own this name. We love the fact that it's been just a performer, a workhorse and this is after a pretty volatile 22, 23.

Kelly Evans (21:44)

Yeah. No, and again I'm not trying to give you a hard time about. It's been a great call. I'm just curious for those who are in it or with. You were thinking about it.

Jeff Kilberg (21:49)

So signal is not yet.

Kelly Evans (21:51)

The signal is not yet. The bat. The signal is out yet. What about the rest of the Mag 7 which a few weeks ago people were saying looked stupid, cheap. What about them now? What do you do?

Jeff Kilberg (22:01)

Well, I think you have to look inside of the Mag 7, that dispersion. We talk about the dispersion. There's been opportunity when we saw Google and Apple really being laggards. And here we are, Microsoft, which has kind of been caught up in the. The SAS apocalypse, that software apocalypse. And I think if you look broader, you look at igv which was really just worked over, taken out to the woodshed and you look at sox, which has been just the workhorse lately on a one year chart. I think we have it in back here. Chelsea, bring that up please. Because we are looking at a chart of the absolute dispersion up 160% for SOX and all of a sudden we're still lagging. So I think you have to pick in peace in some of these software names like now, which has been obliterated.

Kelly Evans (22:36)

So would you. So who's. Who is Microsoft a yes for you?

Jeff Kilberg (22:41)

Microsoft is adding to that position. I think it's overdone I think the whole 2026 marketplace, the sentiment, the politics that's injected into every stock price every day. You know, it's a neck snapping opportunity but I think this dispersion is providing an opportunity to buy more Microsoft, to buy more Apple.

Kelly Evans (22:57)

What about ServiceNow?

Jeff Kilberg (22:58)

ServiceNow? We just started buying that in our other ETF, our Growth ETF, the Mango Growth ETF ticker symbol. Gary, we just started nibbling at that. It doesn't feel great here, but it doesn't feel good. That's the time.

Kelly Evans (23:07)

So you're buying Microsoft. What else? Of the, of the major players next week you say Apple.

Jeff Kilberg (23:12)

So we own them all, but we own them in an equal weighted manner. But it's really interesting if you look at Wednesday, the top four names, that's $15 trillion of the S&P 500, which is $60 trillion. So 25%. Is it really going to make a difference?

Kelly Evans (23:25)

Is it going to be about CapEx for instance, in the past, for several quarters now it's been one quarter. It was what Google said about its core search business, another quarter. It's all about the CapEx numbers. What's the focus?

Jeff Kilberg (23:36)

You're absolutely right. You hit the nail on the head. It is about that. But which capex lens are we going to look through if we go to Amazon? We saw the CEO talk about every dollar they're spending. That ROI is being matched. They can't spend enough. Today we just saw Google talk about a $40 billion investment. Anthropic. This is an AR arms race. That's not a news flash. But how is the market taking it? 2025 Q4, no one liked the fact that people are increasing their capex. Tesla just increased their capex. They saw a $30 sell off after earnings were pretty good earnings. So I think there's a bifurcated view out there. But I love the fact that Amazon is showing that we spend more money, we're going to make more money. Agree or disagree with the arms race?

Kelly Evans (24:12)

Sure. Are there any that you're more cautious on into earnings or just in general?

Jeff Kilberg (24:17)

Well, I think you have to consider the run. You have seen some of these names on like Google, like Google. But Google's doing so much and they're so diversified inside the space. So we still own Google, we want to own more of it. But I think you have to look at the Microsoft, you have to look at the ServiceNow but we want to stick with Applied Materials. You know we sold Micron, we had a great run in Micron and we tried buying it back. We missed that buy. So not everyone's a winner, right? People don't like talking about the loser, but we missed that Micron buy. But I think Applied Materials, Nvidia, all these semiconductor names, those have really been workhorses and we're going to stick with them because of the momentum behind them quickly.

Kelly Evans (24:49)

But why did they get so cheap if they, if they can be all considered as positively as we now seem to recognize, it was just a few weeks ago that no one seemed to want them.

Jeff Kilberg (24:58)

I think as simplistic as an ATM machine, when you see profits in some of these names, they become an ATM machine. People go there, they take profit and they recalibrate. Now there has been a great rotation underway since Q4 2025, but at the end of the day people are still owning chips because the insatiable thirst for chips moving forward.

Kelly Evans (25:15)

All right, Jeff, thanks. Really appreciate let you I think you have a plane to catch.

Jeff Kilberg (25:18)

I have a plane catch and I'll see you next Wednesday. We'll talk about all the earnings and fed back here.

Kelly Evans (25:22)

Plus the pershing don't go anywhere plus everything else. Yes, Jeff, thanks very much Kelly. Speaking of the MAG7, Microsoft and Metta just announced thousands of job cuts ahead of next week's results. Is AI to blame for those cuts or are these companies still bloated from the pandemic? That debate coming up on the expansion exchange and check out checkout. CrowdStrike shares up about 10% since Anthropic rolled out its Mythos AI model to a number of names, including CrowdStrike. Here's what CEO George Kurtz told Money Movers about the impact it's having on the tech world. I think what it has done is

Jeff Kors (25:56)

it really has heightened the awareness of

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Kelly Evans (26:01)

It is absolutely better than the other

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models, in some cases for security. But at the end of the day,

Kelly Evans (26:06)

the other models are going to catch up very quickly.

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And what we need to be focused

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on is finding the issues, protecting them

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Kelly Evans (27:42)

come back. We're keeping an eye on the broader averages. The Nasdaq up nearly 1 1/2% on the chip strength. The Dow is still down by about 147/2% gains for the S and P and Russell. As for some other of today's movers, Charter shares are plunging after losing 120,000 Internet subscribers versus last quarter. And that's also weighing on shares of Comcast. Charter's down 22%. And Comcast, which was up 8% yesterday after strong results, is giving back all of that and then some. Two reasons. One, what Charter just reported. Also they were moved to hold at Deutsche Bank. The analysts there say the current valuation is appropriate for a stable but not growing business. CMCSA down around 28. Let's get to Sima Modi now for the CNBC news update.

Sima Modi (28:25)

Sima Kelly, good afternoon. Here is what we are watching at this hour. Ukrainian President Vladimir Zelinsky in Saudi Arabia today for a meeting with the crown prince Mohammed bin Salman. Zelensky says the two discussed sending Ukrainian air defenses to Saudi Arabia and energy cooperation to make Ukraine more resilient. It's Lenski's second visit to Saudi Arabia in a month as the sides seek to develop a previously signed security agreement. In other news, the Justice Department just expanded the use of the federal death penalty. The DOJ order also expanded, expands the type of execution permitted, including death by firing squad. It comes after former President Biden commuted The sentences of 37 death row inmates in his final days in office and a shift away from the death penalty. One of President Trump's first orders in office was undoing that shift. And King Charles is expected to meet with New York Mayor Zoran Mandani next week. That according to Politico. The leaders are expected to attend a wreath laying at the 911 memorial on Wednesday. Wednesday former Mayor Michael Bloomberg will also attend, according to the report. I'll be quite the photo op.

Kelly Evans (29:28)

Back to you, Sima. Thank you very much. Coming up, Intel, AMD and ARM holdings all soaring to record highs on the heels of Intel's results. And the month to date moves here are staggering. Intel's up nearly 90% for its best month on record. AMD, its best month in a quarter century and its ARM's best month in more than two years. What did we learn from Intel's report and why is it boosting AMD and others? We'll dig into that next. As our country celebrates its 250th anniversary, CNBC spotlights the leaders driving business and the nation forward.

Noel Wallace (30:07)

I'm Noel Wallace, chairman, president and CEO of Colgate Palmala, a 220-year-old American company that's reimagining a healthier future for all people, people. In 1806, William Colgate started the business just here down the street near the New York Stock Exchange. In fact, he started as a small soap and candle business. The company became a household name in the 1800s when we evolved the company from a candle and soap business into oral care. And then we started to expand in the early 1900s all over the world. We started to think about oral care as a way to reimagine a healthier future for all. We transformed the category by bringing the first squeezable collapsible tube. And most recently, we've launched the first recyclable tube in the world. It really started with a consciousness of purpose. It was about leading edge science and innovation. It was about creating a culture where our people could thrive. And it was about constantly reinventing ourselves through difficult times and challenges. We expanded around the world in the 1920s. Today, the Colgate brand is in more homes than any other brand in the world. What's allowed us to endure over 220 years is again this constancy of purpose that's embedded into our culture, that's embedded into our values. And our people truly believe that. And they see that they're empowered to make a difference in the world. We have grown alongside of America from the industrial Revolution to the AI revolution. And I believe, and I think all Colgate, our best days are ahead.

Kelly Evans (31:44)

Intel, AMD and arm, all Hitting record highs after Intel's blowout results last night. In fact, its strength has DA Davidson giving AMD an upgrade to buy as well. Today they say Intel's beat is a precursor for a huge step up in AMD's CPU franchise. And they raised their target to 375 a share. Let's bring in the analyst behind that call, Gil Luria, head of technology research at DA Davidson. And Gil, primarily this, I imagine, is why we're seeing AMD up 12% today on no other news. So just how much is can you foresee now in terms of further upside for all of these stocks?

Gil Luria (32:21)

Yes, if intel has this much upside from selling CPU capacity, it's very hard to imagine that AMD won't have the same gains and report them as soon as May 5th when they report their quarter. This all happened very fast. At the end of last year, the products from Anthropic got people to start using agentic tools. And as these agentic tools ramped up, we realized that we need a lot more CPUs. So this happened very recently. We knew this was coming, but everybody was surprised by how quickly CPU capacity exhausted itself to a point where intel yesterday talked about selling chips that they had previously written off. That's the manufacturing equivalent of picking something off the trash and selling it. So we really quickly got to this point, and that's great for anybody else that sells GPUs, which is primarily AMD, then intellectual property from ARM. But let's not forget companies like Nvidia make CPUs. Companies like Microsoft and Amazon have data centers full of CPUs. We need those CPUs now because the types of tasks being executed are CPU tasks. After the GPU task, the GPU does the inference and asks a CPU to carry out a task. So we need a lot more CPUs to GPUs than we did previously.

Kelly Evans (33:45)

You know, I want to go off on a whole side tangent about the wonders of innovation and the way in which it is like bringing back to life chips that were literally left to death. It's a beautiful story. So let's go back to the main point though. So the cpu, which we all think of as that clunky box that used to sit on your desk right in the 90s.

Gil Luria (34:02)

Well, we still have it in the computer in front of you. There's still a cpu. And when you are doing something on the computer, you're using the cpu. Which is why when an agent does something on your computer, the agent is using a cpu. So, yes, there's still an inference transaction happening, an inference calculation happening on a GPU when you make an AI request, but as that AI request to say, answer one of your emails, organize your calendar, or execute any other tasks that you're asking an agent to do, it's happening on a cpu. So those were always there. It's just that we need them a lot more now because instead of just humans using the cpu, we're deploying all these agents to use those very same CPUs.

Kelly Evans (34:48)

But am I correct to connect the dots between my friends who are using, you know, tokens on CLAUDE to do their programming job? And again, that the more they use, the happier their bosses are. Is that the kind of work that CPUs are also powering?

Gil Luria (35:04)

Less so.

Kelly Evans (35:05)

Okay, less so.

Gil Luria (35:06)

Again, if this is programming, that's a really GPU intensive problem. And it has been. Which is why the boom in AI programing isn't what led to this. What's led to this is people using GPUs to replicate other types of tasks. And again, this is so recent. This is just based on the last few iterations from anthropic that have caused very broad adoption of use of agentic tools for day to day tasks, for work tasks, for things that otherwise humans would do. But programming is still by and large a pure, more pure AI problem that still solved most of the NGPU's. That's why the boom in programming didn't cause this shortage of CPUs. It's the boom in agentic use in other contexts, in context that humans would otherwise be involved in, that's causing this big shortage.

Kelly Evans (35:59)

And are these CPUs being used at a data center or some third place? Or are we talking about this work that I'm doing here on this laptop? I'm now going to need a new one, a faster one. Another one. Is that what you're talking about?

Gil Luria (36:17)

For now we're talking about CPUs in a data center, often the ones that are attached to GPUs. But one of the things we heard from intel yesterday was the step after that will be that we're going to give more AI capabilities in the CPUs that go into a PC and carry out more tasks that way. But right now we're still talking about CPUs in a data center. Which again is why I'm highlighting that the next good news is going to come from the likes of Microsoft and Amazon that up until a few years ago, we're building all their Data centers with CPUs. The shift to accelerated computing and GPUs is a relatively recent one. So those two operators of older data centers have those CPUs and that's something that they'll probably be able to sell more of and mark up in the coming quarter.

Kelly Evans (37:07)

Why would they fill their Data centers with CPUs a few years back? And when I'm asking Agentic AI to help me with something, are you saying that they're kind of going and executing that task on a CPU somewhere else?

Gil Luria (37:21)

Well, so first of all, GPU is a relatively new phenomenon. Up until a few years ago, Jensen was just making them so our graphics on our gaming would look better.

Kelly Evans (37:29)

True.

Gil Luria (37:30)

It's only the last few years where he's real, where hyperscalers have realized that you can actually get a lot done with GPUs in the data center. So all the old data Centers ran on CPUs for many years. And that's by the way, a market that intel dominated for years and then AMD came in and has faded as GPUs have replaced them in the data center and are now in a resurgence. But yes, to answer your question, when you put in a gentic query such as answer all my emails, organize my calendar, set up an appointment for me, what's happening is you're still doing a GPU calculation in a data center and that inference is still happening there. And then that is requesting the transaction to happen at a different point in a data center or even in a different data center on a cpu. So that's how these more straightforward linear tasks are happening. The GPU tasks are parallel processing, transformer matrix multiplications, very complicated stuff.

Kelly Evans (38:32)

Right.

Gil Luria (38:33)

The CPU is for straightforward transactions like organize my calendar, send this email, make this appointment.

Kelly Evans (38:39)

And I can understand, as you describe this, why there would be again, this huge need for more memory, more, more everything that goes into using, you know, both CPU and GPU capacity. And I did catch your point in there about Microsoft and Amazon and we'll see if they can confirm any of that next week.

Gil Luria (38:58)

Yeah, it's going to be a big week. Wednesday of next week is going to be the biggest earnings day ever. And we're going to hear a lot about this. We're mostly going to hear about how quickly are they building data centers. Right. That's the big question for Wednesday afternoon is are there delays? Can they deploy all the capex in time? If they can't, can they meet their own projections? Can their suppliers meet their projections? Those are the big questions we're asking for Wednesday because the demand is there. There is no question we need a lot more AI compute capacity. We need all the data centers we're trying to build and then we're going to need a lot more next year. The only question is, can we build them fast enough? Is there enough construction? Are states going to allow it? Are we going to get enough CPUs in there? Are we going to get enough memory, enough optical connections, enough advanced packaging? There's all these bottlenecks that are preventing us from getting all the compute we need right now, and that's the big question for Wednesday is are we going to be able to get through those bottlenecks, build more compute so we can serve more AI? Because clearly it's generating revenue. If Open Air and Anthropic are at a $50 billion combined run rate, the revenue is being generated. We just need a lot more compute in order to generate even more.

Kelly Evans (40:13)

All right, Gail, thanks very much. Appreciate your time.

Steve Liesman (40:16)

Thank you.

Kelly Evans (40:16)

Gil Luria with DA Davidson. Speaking of which, Metta and Microsoft, while all this is happening, are still announcing some major workforce reductions. What investors investors should make of those layoffs is next. This week. Metta planning to eliminate 8,000 jobs and close 6,000 open positions. Microsoft offering voluntary buyouts to about 7% of its workforce. And while AI is getting some blame for this, Wolf's Chris Senec says these layoffs are more about post pandemic workforce normalization, noting that headcount growth nearly tripled at the ServiceNow and Tesla since the end of 2019. And he writes that after years of overhiring and retaining employees when labor was scarce, companies are returning to a more efficient labor force. That doesn't mean AI is totally off the hook, however. Julia Boorstin has more.

Julia Boorstin (41:07)

Julia well Kelly, what we're seeing now is the fact that in the past 24 hours, Met and Microsoft announced a combined 23,000 job cuts. And that speaks to how tech giants are doing more with fewer workers. And that speaks to new AI efficiency, enabling each worker to do more. CEO Mark Zuckerberg said in the company's last earnings call quote, we're investing in AI native tooling so individuals at Meta can get more done, saying we're starting to see projects that used to require big teams now be accomplished by a single very talented person. So new AI driven capabilities are intersecting with a hangover of hiring. During the pandemic, Meta headcount peaked in Q3 of 2022 at 87,000. It dropped down to 67,000 at the year at the end of the year of efficiency in 2023, Mark Zuckerberg's declared year of efficiency and then grew again to 79,000 before these latest layoffs were announced. Savings from these job eliminations are funding investment in GPUs and data centers, which are now the the hyperscalers priority. Met is spending as much as $135 million this year on capital expenditures, while Microsoft's run rate puts it on pace for 145 billion in capital expenditures. Excuse me, that was 135 billion in capital expenditures this year with B billion with a B. Now analyst Dan Ives saying of the layoffs, quote, we believe that this is part of Met, a strategy to increase leverage AI tools to automate tasks that once required large teams, allowing the company to streamline operations and reduce costs while maintaining productivity, driving an increased need for a leaner operating structure. Kelly?

Kelly Evans (42:57)

All right, Julia, thank you for now. We appreciate it. And again, the big earnings days are coming next week. Julia Boorstin Meantime, Tesla is the worst performer of the Mag 7 this year, down another 6% this week. But New street is staying bullish. The analyst makes his case for 60% upside from here after this percent since its report earlier this week. While it beat on earnings and improved margins, much of the Street's attention focused on their increased CapEx forecast and their ongoing evolution from carmaker to AI robotics company. But my next guest says that evolution will pay off big time. Let's bring in Pierre Ferragu, he's an analyst at New Street Research. Pierre, I feel as though maybe it's just me, maybe it's others. Our attention has not so much been on Tesla lately and we have this huge Space X IPO coming. Where what kind of juncture is Tesla at right now? And is the Elon Musk empire broadly at, do you think?

Pierre Ferragu (43:53)

Yeah, it's a great way to, to look at it. I think there is a lot of convergence between, between Space X and, and Tesla in the, I would say in the last few months. So at Tesla the turn of the company was really like AI and that's robotaxis, full self driving on one side and the optimist robot on the other side. And what we learned on that front this week really that all these projects that were, you know, R and D projects like very, very small scale are now really getting into scale out Mode with the $25 billion of investment. So the first production line of Optimus, the fact that we have now cybercabs without a steering wheel getting out of the factory today we've seen robotaxi rides growing to 20,000 rides a week. It took three years to way more to get to get to 10,000 rides a week. So Tesla is now catching up grand much, much faster. Probably will be like at 50,000 rides a week in the next three quarters. So even if the duration of all these bets is still multi years, it's going to take multi years before we get to significant volumes of Optimus robots being produced or for Robotaxi to get to a scale where it's going to meaningfully contribute to the free cash flow Tesla can generate. All these things now corresponds to tangible investments. And I think it's a big. Yeah, and he talked about it's a big move forward.

Kelly Evans (45:30)

Yeah, on the call he said, you know, Optimus is going to be the biggest product of all time. I think he's saying 20, 27, it's going to start being produced in that Fremont factory that used to make cars. Is Tesla going to keep making traditional automobiles or is this company pivoting entirely? You have a $600 price target for Tesla. We have SpaceX coming at potentially a $1.75 trillion valuation with a pay plan for him that scales up to a $6.6 trillion valuation. So huge ambitions with Space X, which owns X AI. On the other hand, you have huge ambitions with Tesla and what that company can become. It's completely reinventing itself. And it's so ironic to me that in the very corner they finally beat on gross automotive margins that they were, you know, people would rail about for so long, it doesn't even matter anymore. They're, they're sort of like, look, that business were sunsetting it basically.

Pierre Ferragu (46:19)

Yeah, it's like the other business is fine and with these gross margins improving and like this interest for cars rising again, because, you know, what's happening on the oil front, the guy is in a very good shape and he's actually going. The car business is going to generate like you know, 15, maybe $20 billion of operating cash flow a year. And what was the company is telling you is all we need to invest 25 billion this year to get started. It's a pretty good deal. And as you say in this $600 price target you mentioned, like, the auto business is barely just above 10% of the valuation of the company. But if you can do cybercaps at a fifth of the cost of your nearest competitors and with a model that can scale out, because you own a factory that can produce like hundreds of thousands of these cars a year very rapidly, like the valuation of a car, traditional car business becomes meaningless. So I do think Tesla is going to continue to produce consumer cars, but it's very, very small in what the company could be worth in a few

Kelly Evans (47:22)

years, a trillion and a half. And you know what, 150 billion of that for the car business here. Thanks very much. Appreciate it. I didn't want to overlook that this week as we wait for the Rest of the Mag 7. Pierre Farragut with New Street Research. That's it for us. Thanks for watching the exchange. And I'll join Steve Liesman for Power Lunch after this quick break.

Drew Pettit (47:41)

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