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Memory’s Moat, Tech’s Role in Recent Highs, and Shrugging Of $100 Oil 5/1/26
00:44:12
Western Digital CEO Irving Tan on the global memory supply crunch and “a lot more opportunity” to expand pricing. Tech has been the key driver of the market’s huge April rally. Is it needed to make new highs from here? Plus, three scenarios on why high oil prices have not had a bigger impact on markets.
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Kelly Evans
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- [00:58]
Kelly Evans
You're listening to the Exchange. Here's today's show. Thank you very much, Scott, and welcome to the Exchange. I'm Kelly Evans and we just wrapped up the best month for the S and P and for the Nasdaq and wait for it in six years. Six years. The S&P rocketing 10% in that time. Although it has some scratching their heads about it. We'll talk about why in a little bit. And we're mostly trading higher today. The Dow only down about 50 points. The best performer is the NASDAQ, up 1%. Apple is helping. It's up nearly 5% on strong guidance, although Tim Cook warned about the ongoing memory supply crunch, saying on their earnings call quote beyond the June quarter, we believe memory costs will drive an increasing impact on our business and we'll continue to evaluate this. For now, soaring demand for memory stocks like Western Digital driving it to a 150% gain just this year. The stock trading down about 2% today after earnings and some analyst concerns over manufacturing capacity. So let's start there. Joining us in an Exchange exclusive is Western Digital CEO Irving Tan. Irving, it's great to see you again.
- [02:06]
Irving Tan
Welcome, Kelly. Thank you very much for having me on your show again.
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Kelly Evans
I assume when analysts say they're worried about your capacity, they want more. Is that what they mean? Is that what they're looking for and what the market needs right now is more capacity or, or is there concern that there is more capacity coming online which could dent the strong run we've seen?
- [02:25]
Irving Tan
I think the focus really is on the increasing demand that we're seeing from customers. Right. We highlighted just two months ago that we thought that the demand for storage requirements were going to be about a 25% CAGR rate going forward. And it's more trending to 30% from what we see right now. And so the concern is, is the industry and are we as Western Digital able to meet that supply? And we feel confident that we can. It's really our focus is less around delivering more units of drives, but delivering higher capacity drives to meet that storage requirement that we're seeing just continue to accelerate from our customers.
- [03:00]
Kelly Evans
I remember we talked about that last time. You said we can meet demand by having higher capacity, not just a higher kind of number of widgets, so to speak.
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Craig Donahue
Correct.
- [03:08]
Kelly Evans
So I want to back up and make sure I've got this story right, because it's quite a story. You took over in early February of 25, is that right?
- [03:15]
Irving Tan
That's correct.
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Kelly Evans
Okay. As part of the spinoff or the split between Western Digital and SanDisk?
- [03:21]
Irving Tan
That's right. We spun out Sanders in February 24th.
- [03:23]
Kelly Evans
Okay. So it's. If you look back, the performance, I mean, we talk about SanDisk all the time, it's up, I think 1200%. Western Digital is up 400. And so do you think the split is now justified by what we've seen because you have a flash play and yours is more of a pure hard drive play, should they have stayed together? I'm just curious. I mean, I don't know if anyone, yourself included, or saw quite this level of. Of explosive demand for memory coming.
- [03:49]
Irving Tan
Yeah, I. Look, I think that the split was the right thing to do. It really created two pure play companies. One in the memory space to SanDisk and one in the storage space to Western Digital. And that singular focus on each of our lines of business, I think has really strengthened our ability to better support and deliver the technology and to enable our customers to really take advantage of. Of the massive demand that we're seeing being created from AI. So definitely the right move. Now we'll see on hindsight, do we think we would get the explosive growth that we've seen? We wish we had a crystal ball, but definitely the right decision. And this pan out in terms of how we've seen the reaction both to the stock price and the performance of both companies.
- [04:31]
Kelly Evans
And we had, we spoke with Mehdi Hosseini a little bit earlier this week and asked him about kind of the stocks that he thinks are best position right now after the crazy runs that we've seen, he actually has. One of his favorites is sandisk is this Flash. And he said it's the tokenization phase of AI that he thinks will drive ongoing utilization of Flash. I'm just curious if you agree with that or have kind of a broad take on how we're moving from the build out phase of artificial intelligence to the usage or the tokenization part.
- [05:00]
Irving Tan
Yeah, if you look, if you bring it back to what we, we provide at wd, we provide storage. Right. And the driver of storage over the last two years has really been from a model training. So it requires a lot of data to actually train models. And what we're seeing going forward is driving the incremental growth rate that I just highlight. Going from 25% CAGR to 30% CAGR is really threefold. That ongoing demand for data storage from model training and retraining of those models to get them to be even more efficient to deliver better quality results. We're starting to see that demand now for storage coming from inference. Two thirds of compute workloads this year are expected to come from inference. Every inference workload will result in more data being generated. That requires more data to be stored as well. And the third piece is from physical AI. Physical AI, whether it's in robotics, autonomous vehicles, there are limited data sets to actually train physical AI. So if you take an autonomous vehicle as an example, there's only so much weather data that you can capture, there's only so much video data you can capture around what's happening in terms of traffic conditions and so on. So they're using a lot of that data sets to use AI to generate synthetic data to create enough data to better train and enable this physical AI model. So the combination of these three things will continue to drive a lot more storage requirements and propel the growth for storage going forward.
- [06:28]
Kelly Evans
That's fascinating. Is it true that your margins are like 60%?
- [06:33]
Irving Tan
We've just reported the current quarter at 50.5 and obviously we see demand continuing to grow. We also reported a 9% increase in pricing. And our focus is really to ensure that we provide predictable pricing to our customers and avoid volatility in terms of what we deliver. So they're better able to design their architectures for storage in the long term to better be able to meet the growth in demand for storage and to be able to price predictably to their end customers as well as to the anthropics of the world, to the open eyes of the world.
- [07:05]
Kelly Evans
Is 9% pricing conservative, Irving?
- [07:09]
Irving Tan
Look, I think there's A lot more opportunity for us to continue to expand pricing. And the way we structured it is to really focus our ability to drive pricing in a predictable way through the delivery of better value to our customers. Our focus is really to continue to deliver better total cost of ownership to our customers. And we do that through a combination of delivering higher capacity drives and better performing, performing drives. So every time we're introducing a high capacity drives, which we will be doing the second half of calendar 26, that delivers better TCO value to our customers, that's an opportunity for us to increase pricing.
- [07:45]
Kelly Evans
When we hear Apple CEO Tim Cook saying, you know, they face supply constraints in the memory front, front in the quarter, he says it'll drive an increasing impact on our business and that we'll continue to evaluate this. Do they have a lot of other options to evaluate or you know, look at cheaper memory options, different kinds of ways to kind of use processing on the phone? I'm, you know, you know the technology more than I. What other options do he or other of your potential customers have?
- [08:15]
Irving Tan
Yeah, if you look up and down the stack from compute to memory to storage, where we play, there's a lot of that's happening to see how greater optimization can happen. Right. You've seen and heard of things like Turbo Quant more recently or many other similar software tools that drive better efficiency in terms of the use of memory to, in terms of inferencing as an example. So we're going to continue to see innovation up and down the stack be both on the hardware side and onto also on the software side to drive greater efficiency. We think that's actually a very positive thing because the more efficiently, efficiently you can use memory, for example, that means you can drive a lot more inferencing. A lot more inferencing means a lot more data getting created and that means a lot more storage that needs to be there to support that as well. So that's very positive from a WD perspective.
- [09:03]
Kelly Evans
I forget the term for it, but you know, you lower the cost of something, you actually create more demand for it. And I think, I think that's what you're talking about.
- [09:10]
Irving Tan
Absolutely.
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Kelly Evans
OpenAI has had some well documented struggles recently and obviously they're a big client on the data center front. If they have to pull back, would that be a risk to the business?
- [09:20]
Irving Tan
We don't see that being a risk to the business because we see, you know, demand right now outstripping supply. So if there's a shortfall in demand for one particular Air lab, we see that being easily taken up by others.
- [09:34]
Kelly Evans
And does the shift overall from GPUs to CPUs have an impact on memory demand, on storage demand?
- [09:40]
Irving Tan
No, it doesn't. You know, at the end day, it's all about the fact that whether it's GPUs or CPUs which are going to be used a lot more inferencing, what happens is all it does is it drives more data creation, which in turn creates more demand for storage. So it's a very positive flywheel and something to just recognize when it comes to storage versus memory or compute. If you take a tokens for example, the underlying resources that create a token are memory and compute. Those resources get reused. Whether you once you finish a token, token gets expired because it runs an inference workload or it's used for memory for model training. Once that model is done, you can recycle the assets. There is not the case for storage. The data that's getting created from an inference workload or from a model gets stored and it's persistent. It's not getting deleted because of the value of data. And so the data that's getting created and the requirement for data storage is just compounding over time.
- [10:37]
Kelly Evans
Yeah, I'm thinking about my Google Photos. Not a perfect analogy, but.
- [10:41]
Irving Tan
But a very good one.
- [10:42]
Kelly Evans
The amount of storage, you know, sometimes I just need to go through and delete these, but. But it's hard. I just want to go back. One quick question before I do. On gross margins at 50 and a half percent, do you guys see that going substantially higher in the future? Could that come down amid kind of customer pushback or where are we in the cycle for you to have gross margins around that level?
- [11:02]
Irving Tan
So I think as we move forward there's a lot more opportunity for gross margin to continue to expand even as we drive greater value creation to total cost of ownership reductions for our customers. That will give us the opportunity to share in the value creation. In terms of pricing, obviously we're very focused on cost downs as well. Last quarter we had a 10% year on year from a cost down perspective. So we continue to deliver value to our customers. Being able to price up, manage our costs very effectively. We see ongoing opportunity to drive gross margin expansion.
- [11:33]
Kelly Evans
All right. And finally I just want to circle back. You know, you guys have such a hard job running these businesses. I get to just sit here and kind of look back and Monday morning quarterback, then chat GPT launched in 2022 and in 2025, I think it was, you said you split, you know, Western Digital and SanDisk. Did you see the tsunami that was coming? Because we have traders and guests here all the time shaking their heads, going, man, if I had just seen this coming. This is one of the biggest, you know, stock market rallies for these. It's. It's hard to. I don't know what your company's analogy is, but we had a company the day going from making, you know, like a dollar in earnings per share to $100. I exaggerating a little bit over the last couple of years, but things of this magnitude don't come along that often. Did you anticipate this tsunami a couple of years ago when you split the business? Was it just a coincidence or fortuitous timing or you just talk a little bit about that?
- [12:26]
Irving Tan
Yeah, it's an amazing time. It just takes eps. We've almost double our EPS year on year. But, you know, I wish I could say I was prescient and I could feel that we were going to just, the trade was just going to explode. But look, we had an inkling of it. But the pace of which innovation has happened, the pace at which AI has happened, and more importantly, the confidence they were seeing going forward in terms of the monetization of AI and the business opportunity of it and the impact that it can have to businesses, it's really unprecedented. And, you know, we're doing our best to really catch up, but now that we see the potential of it going forward, we're definitely investing for the future to be able to support the demands for storage that we are seeing continuing to increase going forward.
- [13:07]
Kelly Evans
All right, 30% growth rates you think now versus 25. So doesn't appear to be slowing down yet. Irving, thanks for making the time joining us today. Really appreciate it.
- [13:16]
Irving Tan
My pleasure.
- [13:16]
Kelly Evans
Western Digital CEO Irving Tan. Now, technology stocks broadly have been the key driver of the market's huge April rally. The S and p is up 14% just from the March 30 lows. And Wolff Research notes that 70% of those returns have come from just 10 big cap tech companies, including Alphabet in video and Amazon. Michael Kantrowitz is the chief investment strategist at Piper Sandler. Michael, it's good to see you. Although I think Goldman notes that, you know, it's also, you can look at this a different way and say the leadership or the breadth is a little bit narrow in the same sense. So welcome. And what do you make of this recent rally?
- [13:52]
Michael Kantrowitz
Yeah, you know, I got to say I don't like that analysis. The problem is the starting point is these stocks are enormous. So whatever they do, they're going to have an enormous contribution to the index just based on their weight and it almost understates the strength of equities outside of that. And look at how small, small. Look at how strong small caps have been in recent weeks and certainly year to date or even small cap tech stocks that are up high double digits. So I would disagree with that analysis and I think it's kind of overlooking just the current weighting of those names and that is going to always lead to a big contribution regardless where else
- [14:32]
Kelly Evans
do you strength when you look around the markets and see signs of health for those who are simply going to see a headline flash by gosh, 10%, 14%. These numbers, they don't make sense, you know, based on their experience of the economy or the geopolitical headlines that they see. What else to you suggests this is strong and has solid fund fundamentals?
- [14:51]
Michael Kantrowitz
Well, I say three things. One, the market breadth. So again look at year to date large cap growth. The S&P 500 growth index is only up about 5,6% year to date. Small caps are up about on average 14 to 15% depending on the index year to date. So that's number one. Number two, earnings breadth. We can continue to see more companies than we've seen in recent months. We're seeing more companies seeing positive earnings revisions than we saw throughout 2324 and most of 2025. And that's happening. And this is the third point, the macro data we continue to see both globally and domestically manufacturing PMIs continue to improve and move the right direction. That's consistent with broader earnings breadth which ultimately all else equal leads to broader market breadth. So we still think that's the underlying story. Shortcut had a great move in April after several months of underperforming. But even within tech look down in cap the returns are much greater than the Mag 7.
- [15:55]
Kelly Evans
I'm glad you mentioned the ESM, which is a huge data point we just got in a couple of hours ago. Kind of sets the tone for the month and maybe for the next few. And it did still hold in there in expansionary territory. Finally a few months string of that after years of contractions. But there's some hint of pull forward. First of all, prices paid were super high. Worsens 22 on that front. New orders were up a little bit. But there were some anecdotes about people building inventories ahead of or in case of what could be coming down the pike. Does that concern you at all?
- [16:23]
Michael Kantrowitz
No, I think that's Part of it, but I don't think that's what's driving it. We look at about a dozen different long term relationships that things that lead the trend in PMI is anywhere from nine to 18 months. These are things like changes in the fed funds rate, changes in the 10 year yield, changes in money supply growth, changes in mortgage purchase applications which which strongly improved last year. Those lead by a year. And we're also seeing strength globally. So to say this is about something unique to the US or just about pull forward. I think the data suggests that there's something much broader going on and I think that's due to the monetary and fiscal policy that we're seeing kick in.
- [17:05]
Kelly Evans
We got to go. But would you rule out 8,000 on the S and P this year?
- [17:11]
Michael Kantrowitz
I think you need some multiple expansion. I think if we can get oil prices much lower in the straight back open. Absolutely. We already have earnings growth improving by more than 10% year to date from where we started on the forward number and the streets looking for another double digit gain next year. So if we get oil prices down, that is a very good backdrop for
- [17:32]
Kelly Evans
equities and that is a good place to leave it. Michael, thanks very much. Good to see you today.
- [17:36]
Michael Kantrowitz
You too.
- [17:37]
Kelly Evans
Michael Kanjiwitz with Piper Sandler. Coming up, oil prices are up for four straight months. It's the longest streak in almost three years. Could we finally see a break in that upward momentum? That's next Next. Plus CBO shares breaking out to a new all time high after the company beat earnings and raised its full year guidance, we'll ask the CEO what's behind their growth. That's coming up ahead on the Exchange.
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Kelly Evans
See website for details. Prices are tumbling a bit today. About 101 for WTI. That's a 3% or so drop this after Iran reportedly sent a response to the US Draft peace agreement. But the fact that the stock market has soared while prices still remain this high and shortages remain a concern has some scratching their heads about it. Historian Neil Ferguson positing three possible explanations for this disconnect in a recent piece. He says it could be number one, the market is seeing through the noise and realizing the war will be over by the end of May, or number two, the market loves AI more than the closure of the Strait of Hormuz. Or three, the market is clueless and ignoring the lessons of the past. Let's see what our next guest thinks. Kevin Book is Managing Director of Research at Clearview Energy Partners. Kevin, welcome to you and I was struck by the extent to which, you know, someone just watching this, like Neil Ferguson thinks this makes no sense to me. So I just wonder if it makes sense to you.
- [20:28]
Kevin Book
Great to be here Kelly. And what a wonderful comparison to have Neil Ferguson to respond to. I think number two, by the way, carrying a lot about I probably is a factor but so there are fundamental explanations that do make some sense. One of them is the energy intensity and more specifically the oil intensity of GDP, of real GDP, which is down about 18% here in the United States over the last 10 years, down 43% over the last 25 years. It mutes the economic damage that spikes do. Another fundamental effect before we go into some of the others, is that the academic literature suggests that you see some reallocation in low income and at risk households pretty much right away. But your hits to top line real consumption tend to lag three to six months behind the shock, but then go from there.
- [21:18]
Kelly Evans
Well, that's not good news. I mean if that's true, then we should then we and frankly the stock market should be pricing in more of a hit usually is anticipating or trying to anticipate developments three to six months from now, and I can't say I've seen the retail and consumer stocks with extra granularity, but we've certainly not seen any big headlines about their them selling off.
- [21:37]
Kevin Book
So that's where I think we get into some of the less fundamental, more metaphysical sides of the story. One of them is the mismatch just right off the gate from the physical cargoes on the open sea, which travel at 10 to 14 knots, and the electronic signals on trading floors, which are practically at the speed of light. It's hard to see all of the cargoes, it's hard to see all of the inventories. And so we're, we're not necessarily in a position to have good information. We get a lot of memes, we don't necessarily get a lot of information. There's also, I think, more metaphysically a sense memory that we've gotten through past crises that a good comparable at this scale. It's hard for traders to get their head around the biggest disruption in oil market history. And then finally in that same category, call it the uncertainty discount, particularly going into a weekend like this one, you don't know what Trump's going to say. It's hard to be long for too long in that environment.
- [22:30]
Kelly Evans
And I think what frustrates a lot of people, I hear this all the time, they say, you know, I listen to the people who know this space and they're counting ships and they're looking at the numbers and they say it doesn't add up. And I certainly don't want to talk about shortages if that's not a real thing. But, but there are concerns about that out there. And yet that's why the stock market is fascinating. You look in the. It has more information than you and I do, and it's saying it doesn't believe or perceive this to be a real concern.
- [23:00]
Kevin Book
And there's reasons to think that it could be over soon. There's also a natural ability to undercount how long it could go on. And so what we were looking at the market, we're looking at all of the things that are being traded at once. And of course, energy is now three and a half percent or something like less than that even of the S and P by market cap value. But that's where one of the ironies comes in. Right. It's also not really adding to the upside because it's such a small part of the bigger pie.
- [23:26]
Kelly Evans
Exactly. And yet we're still going to the levels that were. It'd be one thing if you said, well, the Stock market's up, but it's all Exxon, you know, profiting from this. That's not exactly the case. So finally, Kevin, what do you think is the situation here as we enter May? We're around the 60 day deadline where maybe Congress is going to try to hold the President, you know, and the war powers have to. Where are we on the Iran war A and on the, you know, what's making it through the Strait of Hormuz and global oil supplies B.
- [23:55]
Kevin Book
Well, we're still at a trickle through the Strait and we've still got a US blockade stopping the Iranian cargoes substantially from going to China. So the supply situation doesn't look like it's improved very much. But even if it did improve, we've got all those ships trapped, all those facilities to repair and all of the inventories to refill before we get to a price normal situation. What right now we're seeing is demand down, but it's mostly supply constrained demand. It's hard to differentiate that from demand destruction. That too is probably happening. And then the question is, could we be on the cusp of escalation, Kelly. And if you go back a couple of days to the President's meme where he's holding an AR15 standing in front of missile strikes against mountain compounds doesn't necessarily rule out escalation.
- [24:40]
Kelly Evans
And in that case, I suppose the markets will have to kind of price this all over again, albeit for however long. It could be a day, could be another day of escalation and then a day of de escalation. It can go pretty quickly.
- [24:51]
Kevin Book
Yeah, it's that uncertainty discount. Doesn't come from nowhere, right?
- [24:55]
Kelly Evans
All right, Kevin, thanks. Really appreciate it. For now, we'll let you go. Thanks for having me, Kevin. Book talking through the oil situation there. Coming up, the Pentagon signing agreements with seven tech firms to use their AI tools. But anthropic isn't one of them. Those details and what it means for tech's future. Indeed. Fee, that's next.
- [25:16]
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It's smart to always have a few financial goals and a really smart one. You can set earning cash back on what you buy every day. And with Discover, you can get this. Discover automatically matches all the cash back you've earned at the end of your first year. Seriously, all of it. And we trust you to make smart decisions. After all, you listen to this show see terms@discover.com credit card this episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed Daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts before we had ATT Business Wireless coverage, our delivery GPS wasn't the most reliable. Once our driver had to do a 14 point turn to get back on route. A 14 point turn.
- [26:22]
Irving Tan
An influencer even live streamed the whole thing.
- [26:25]
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Not good for business. Now with AT&T business Wireless routes are updating on the fly and deliveries are on time. And the influencer did get us 53 new followers though. AT and T Business Wireless connecting changes everything.
- [26:45]
Kelly Evans
Welcome back. As we are kicking off may so far with Green for everyone but the dowager is only down 8 points right now. The S&P up about 610 of a percent 1% gain for the Nasdaq. A lot of this hanging on exactly what the commentary is out of the White House about the Iran situation. That's what what has pushed the Dow down from its earlier 300 plus point gain. Meantime, the Defense Department striking deals with seven tech companies that gives the Pentagon permission to use their AI tools in classified settings. But Anthropic is still on the sidelines. Kate Rooney has more in today's tech check.
- [27:16]
Kate Rooney
Kate hi Kelly. So the Pentagon this morning expanding the circle of tech companies it's going to be working with on classified networks. We've got anthropics rival OpenAI, Elon Musk, space X with X. I've got Amazon, Google, all new partners in this. But Anthropic as you mentioned Kelly, notably not on this list. That comes amid its fight with the department that we mentioned, the Defense Department there, Pentagon CTO Emil Michael saying on Squawk Box this morning that it was irresponsible looking back to rely on just one partner after its high profile fallout with that AI company. He has confirmed that Anthropic is still blacklisted, but he calls out cybersecurity and then Anthropic's powerful Mythos model as a separate issue.
- [28:00]
Kelly Evans
I think the Mythos issue that's being dealt with government wide, not just a
- [28:05]
Commercial/Advertisement Voice
Department of War, is a separate national
- [28:06]
Irving Tan
security moment where we have to make
- [28:09]
Kelly Evans
sure that we're our networks are hardened up because that model has capabilities that are particular to cyber finding cyber vulnerabilities and patching them.
- [28:20]
Kate Rooney
So earlier this year Anthropic was designated as a supply chain risk. That was an unprecedented label for a US Company. Anthropic has argued in court that the label is unfair and it's going to cost them, they say, hundreds of millions of dollars in business. Despite all of that, multiple departments in the government are reportedly still using Anthropic technology. CEO of Anthropic, Dario Amade did meet with senior officials a couple of weeks ago, called that productive in terms of how those meetings went. Also, does Kelly speak to the risk of AI and cybersecurity and just how important the private sector is in this entire conversation?
- [28:55]
Kelly Evans
Kelly, you know, years back we would see a lot more employee pushback against working with with defense or with the government. I understand there's a little bit of that going on with Google now, but is it going to rise to the level of what we used to see?
- [29:07]
Kate Rooney
Kelly, it's such a good point. And it came up in that interview with Emil Michael, who sort of congratulated leadership at Google for pushing back on that. It's gotten a lot quieter in Silicon Valley. I would say when you look at some of the tech companies, it's a lot more in vogue to be working with the government and to be working in defense. You look at AT companies and the success of a Palantir and that has become a little less taboo to be doing government work. Although in AI it's very specific niche issue. And Anthropic's stance, at least among AI researchers, was a very popular one. So there was a lot of folks saying it's actually bodes well for them for recruiting because they're seen as taking a stance and saying we don't want our technology used for certain things. So in terms of the pr, when you look at just what it means for AI engineers, it's good if you think about what it means on a political side, it's made the company a bit more divisive. But clearly they're still important enough to be part of this conversation.
- [29:58]
Kelly Evans
It's a good point about recruiting as well amid a war for talent. Kate, thank you very much. Kate Rooney. Let's get to Angelica Peebles now for the CNBC news update.
- [30:06]
Angelica Peebles
Angelica Afternoon, Kelly. President Trump reportedly signed an executive order today broadening US Sanctions against the Cuban government. Two White House officials told Reuters the fresh sanctions target people and organizations that support the Cuban government's security apparatus or complicit in corruption or human rights violations. It was not immediately clear exactly who was targeted. The White House's expansion of Wall the wall along the southern border has damaged a rare Native American archaeological site in the Arizona desert. According to the Washington Post, construction crews reportedly ran heavy machinery through and destroyed a large swath of a 200 foot long ground etching that is thought to be more than 1,000 years old. Border Patrol told the Post the remaining portion of the site has been secured and will be protected. The Wall Street Journal reporting Spirit Airlines is preparing to seize operations after it wasn't able to secure enough support from bondholders in the federal government. However, President Trump saying earlier this afternoon that he's driving a tough deal and that he hopes to have something today or tomorrow. So that will certainly be one to watch, especially if you have tickets for that.
- [31:13]
Kelly Evans
Kelly, good point. And as other regional airlines are saying, all right then, where's mine? Angelica, thanks very much. Coming up, we'll speak with the CBO CEO on the back of the company's blowout earnings report. Those shares have now tripled over the past five years. What's driving the surge in options activity? We'll find out after this. Welcome back. Shares of CBO are on pace for their best day since April of 2020 with a nearly 8% pop after strong first quarter results. The company raised their full year revenue guidance, reduced their operating expense forecast and announced plans to cut the workforce by 20%. This comes a little more than a week after reaching a deal to sell its Australian and Canadian exchanges. Let's bring in CEO Craig Donahue. He's the CEO of CBO Global Markets. Craig, it's great to have you here.
- [32:07]
Craig Donahue
Thank you. Great to be with you.
- [32:08]
Kelly Evans
Talk a little bit about a 20% workforce reduction. Is that related to those overseas businesses?
- [32:16]
Craig Donahue
Yeah. A fair amount of the reduction in the workforce is associated with the strategic realignment we announced a number of months ago. And what we're really doing is pivoting, you know, toward growth in our core businesses. You know, derivatives is, is really the power that drives our company. As you probably know, we invented equity options here in the United States 53 years ago. We invented the Vix index. We continue to be leading the market in terms of SPX options and more recently, zero days to expiration contracts, which are basically daily event contracts. And so we've just had continued growth. But, you know, we've sort of started moving away from some of the things we were trying to do in equity markets in Australia, Canada and Japan. And we've trimmed so that we can focus and focus investment in these high growth areas, not only our current core business, but a lot of the new growth areas that we see in the marketplace.
- [33:18]
Kelly Evans
And Craig, as I understand you've been in the seat for about a year and are kind of pursuing that strategy you, that, that you just outlined. So you've had tremendous growth and success with things like zero day options. I do wonder if some of that activity goes into the explosive growth in prediction markets.
- [33:37]
Craig Donahue
Well, we actually see it the other way. I think. First of all, I would describe zero DTE options as basically daily event contracts. And so we've got an enormous head start there. We trade almost 3 million contracts a day just in that category alone. And so what we're doing is we're bringing even more granular products to market. We'll start this summer and then later this fall. And I think there's just a plethora of great opportunity. Our focus will be more in securities based products initially and then ultimately, you know, other kind of financial commodity and economic indicators. But this is really capitalizing on the business we've already built in zero dte. We also are one of the largest stock exchange operators in the world. And so, you know, decomposing equity securities and looking at more granular events that are relevant to investors, especially retail investors, because that's a huge part of our growth story, is really compelling and super exciting.
- [34:42]
Kelly Evans
Forgive me if you've said, have you said whether you would yourself get into prediction markets or no?
- [34:48]
Craig Donahue
We have, we plan to get into event contracts as I mentioned. I see and we see a lot of, we see a lot of opportunity there for people to express a point of view in a different way. On equity securities, for example, you know, we have people who are interested in, you know, Tesla car production or meta ad revenues or Netflix subscription numbers. And so those will be in the nature of the kinds of things that we will bring to market.
- [35:16]
Kelly Evans
What do you say to those? I often, whenever there's a little market blow up or evolve event or something, I always hear people say it's the zero day options. Is there any truth to that?
- [35:27]
Craig Donahue
No, not at all. You know, in fact, if we look at it over the course of the time that we've been, you know, really seeing this, this zero DTE market grow, you know, retail investors are pretty savvy and they're very smart. They become increasingly sophisticated and during times of greater volatility, we actually see them, and I actually commented on this on earnings this morning, we see them sort of shift away from things and then they come back in. So I think that's actually not accurate at all. And the other thing I'd like to point out is that zero DTE options, that market has evolved and Matured. Half of the activity there is institutional. So this is not only retail. It's just that retail is a huge new growth sector in equity markets and equity derivative and option markets.
- [36:11]
Kelly Evans
And finally, Craig, one of the other major innovative products on the scene has, of course, been everything crypto. What's your point of view on that?
- [36:20]
Craig Donahue
You know, I think crypto is here to stay. And I think we're finally getting to the place now where and soon, with additional legislation and more, you know, rulemaking at the regulatory level, we'll have a better regulatory framework for crypto. That's another area where we've been an early leader, but certainly an area of focus for us in terms of our future growth strategy.
- [36:44]
Kelly Evans
Right. And so if I, you know, if we were to look back at the evolution of markets and all these additional kind of contracts and options and opportunities for people to get exposure, what should we expect is the next couple of chapters to the story here? You've hinted at it a little bit, but is there anything else you mentioned, kind of launching the VIX and things like that? Anything else that you could foresee coming. Coming, you know, coming to bear?
- [37:10]
Craig Donahue
Well, I think, you know, what's happening in the markets right now is fascinating. There's a tremendous focus on tokenization of financial products, tokenization of financial assets. That's a whole new area of innovation opportunity. We see tremendous growth in perpetual futures contracts as well. And then, you know, we see a lot of growth in appetite for transacting in financial instruments that are already traded on traditional exchanges and cleared through traditional clearance clearinghouses, but being done on chain. And that acceleration is rapid. So those are other areas where we see opportunities for innovation, which can be about products, it can be about delivery system, it can be about independence and autonomy and the way that investors choose to interact with each other other than through just the traditional market infrastructure. So it's actually a really exciting time in the financial markets and a really exciting time here at cboe.
- [38:12]
Kelly Evans
Well, Craig, we appreciate you joining us with that detail and a sense of what else may be to come. Thanks so much.
- [38:19]
Craig Donahue
Thank you.
- [38:19]
Kelly Evans
CBO CEO Craig Donahue joining us today. Kind of flip side of that is Berkshire Hathaway's 61st annual meeting. It's tomorrow. And shareholders, as you can see, are able to walk the floor and shop Berkshire brands like Squishmallows and Brooks running today. Ahead of the meeting main event, we'll head live to Omaha for a preview of the Able era next. Berkshire shares a little higher today, although down about 5% since its last earnings report, first quarter results are out tomorrow morning, which coincides with its annual shareholder meeting. And this one will be Greg Abels first as Berkshire CEO Becky Quick joins us now live from Omaha for a preview. Becky is very busy there behind you.
- [39:03]
Becky Quick
It is Cal. You know, they just opened up the floor here to allow the shareholders to come in and shop around. They've got a lot of the different companies from Berkshire that are here presenting. Of course, there's a lot of things that you can buy, including stuff like the Squishmallow. This is new this year. You've got the Geico Gecko Squishmallows. So you've got a lot of people who are getting in and trying to buy this, the See's Candy, the Dairy Queen, fruit of the loom oriented trading, all kinds of stuff that people want to buy before they can sit down. This has always been a big part of why they have thousands and thousands of shareholders that come to this meeting. And I will tell you, the crowds are pretty significant. People wondered what would happen with Warren Buffett for the first time in 60 years, not being the one who's going to be taking the stage. As you mentioned, it's Greg Abel who will be taking the stage tomorrow and it will be his first time as the CEO coming out and taking questions. Now there are a lot of questions, questions because of that change, a lot of questions we've been getting from shareholders. People kind of wondering how will his management style differ from Warren Buffett's? What's he going to do with the $375 billion cash word that Berkshire has built up this at this point? And what's he going to do with the $300 billion stock portfolio when he's more of an operator and not so much of a stock picker like Warren Buffett is? Well, we got the chance to, to sit down and talk to Greg Abel yesterday. He did write in his annual letter this year that that stock portfolio is not necessarily something where you're going to see a lot of changes in movement. He said $200 billion of that is going to be things that are pretty stable and stayed. Things like the Japanese trading houses that they own. If you add up that and their four of their largest positions, American Express, Moody's, Apple, which is its biggest position in CO. He said that's really $200 billion of that portfolio. He says we know those businesses and we know those leaders and that's why we feel pretty comfortable that there's not going to be a lot of movement there. Of course, we've heard two of those big companies, Coca Cola and now Apple, are going to have new CEOs. So you don't know the leaders as well. And when we caught up with them yesterday, that's what we asked him about.
- [41:05]
Kevin Book
We will be meeting with the leaders,
- [41:07]
Michael Kantrowitz
in fact, in this coming week with both of them, the incoming and unfortunately the change.
- [41:12]
Kevin Book
But that happens. And, but what we, what we do
- [41:15]
Michael Kantrowitz
believe in, and I believe that's what we had. We, we know the quality of those leaders. We know the quality of the businesses. The, the boards are exceptional. They're going to have thought this through very clearly and have the right leader. And, and time always tells. But the reality is we're excited by the leaders coming in and very supportive of what the prior two leaders had done. It's, it's remarkable what they've done with those two businesses.
- [41:44]
Becky Quick
Sue Decker is the lead director here at Berkshire. She's been on the board of directors for 20 years as of this year. And she sat down with us this morning on Squawk Box and talked a little bit about how when you look at the stock portfolio, while the value has gotten much larger, $300 billion. And when you look at the cash hoard, $375 billion, obviously that's grown over time, too, but she really laid it out in numbers I hadn't considered before. Her point is that while those numbers have gotten bigger, it's a much smaller part of the business from a percentage basis.
- [42:14]
Kelly Evans
Listen in one of the things that's astounding on all that is that 375 billion of of market cap in securities is 40% of our shareholders equity now at 700 billion. When I joined, the portfolio was 60% of shareholders equity. So even though it's so big, the company has grown so much that over time, what's become more important is growing the operating earnings versus the capital allocation piece of this you think about the operating earnings now are 45 billion after tax operations, operating companies, and a 12% increase in that is five and a half billion. That's as much as Burlington Northern makes a year. So just growing that, just having a focus on execution and growing those operating earnings can add a Burlington Northern every year without making an acquisition.
- [43:07]
Becky Quick
Now, Kelly, Greg Abel has been here today. He's walked the floor, met with a lot of the managers of these businesses. Tomorrow he'll be taking questions from shareholders directly. And again, we're watching to see how many people come through. You could usually count on around 40,000. And shareholders coming through to listen to Warren Buffett and Charlie Munger take on all of this. It does seem from the request that they've gotten for tickets that you are going to be still looking at tens of thousands of shareholders that are coming here. The requests were down about 10% from the number of requests that they got last year, but still above or maybe about on par with what they saw in 2024. And we will see what happens with these questions that come through, the kind of answers that they'll be getting from, from Stage tomorrow when Greg Abel takes center stage.
- [43:48]
Kelly Evans
Oh, yeah. And they've created this culture. You know, we were just talking about zero day options in the segment before and this is the place to go if you want to do the opposite of that. And I think it's important for a lot of whether they're investors or other similar people who run their company similarly to kind of be there and, and make sure that that culture stays strong. Becky, really appreciate it. Thanks for making the time this afternoon.
- [44:08]
Becky Quick
Thanks.
- [44:08]
Kelly Evans
We look forward to a whole lot more coming. CNBC's coverage of the Berkshire annual meeting kicks off at 9:15am tomorrow morning. That's only on CNBC.com you definitely don't want to miss it. And Caterpillar touching another new high today, extending yesterday's big gain. Is it time to take profits? That plus the other, the week's other big winners, I should say. That's next. We are kicking off May with a bang here. I mean, just the fact that we're positive. New highs for the S and P and NASDAQ after a really strong April. In fact, let's trade some of the names that closed April with the biggest gains. Victoria Greene is here for that. She's the CIO at G Squared Private wealth and a CBC contributor. Welcome to you. And you've been hot on the Mag 7, especially since those lows. Let's kind of put that as the backdrop here as we ask about intel coming off its best month ever. The shares more than doubling, its market cap nearing half a trillion dollars. Is this a sell it and walk away or hold on to it?
- [45:07]
Victoria Greene
It's a hold here. I really, really like this stock. I know it's not cheap anymore. It's gone slightly parabolic, but the momentum is still there. There is a very strong case that this stock is just getting started. We are still in middle innings for it. And it can completely run higher. I mean tariff. It's about the partnerships. It's Nvidia, it's Tesla, it's the US Government. It's the onshoring focus that we have now. And they're one of the only chip manufacturers here. And so I look at them, they're finally getting fab going. They're getting their chips going. The A14 is looking good. A18 is running. Everybody's starting to get on the intel train. So for me, this is a core stock. Nvidia was a core stock to hold five years ago. Intel, the core stock to hold this year.
- [45:42]
Kelly Evans
Nvidia is still five years ago.
- [45:43]
Kevin Book
That's, that's what.
- [45:44]
Victoria Greene
So five years ago.
- [45:45]
Kelly Evans
What about Google, which is wrapping up its best month since 2004 with a 34% gain after the initial run it had from Gemini. I mean, it's hard to wrap your mind around it. What do you do with this one?
- [45:57]
Victoria Greene
You need them in your portfolio. They are the absolute winner of the Mag 7 and they're executing on all cylinders. Look what's happening finally happening with Google Cloud. It's exploding. They're not just advertising anymore. This is like when Amazon figured out us. Google now has these new verticals, what they're going to do, how they're doing with chips. But first off, they're vertically integrated. They're saving money on that. They're implementing AI, but they're expanding so much beyond advertising and they're defending that search. We're so worried. Chat, GDP and everybody else is going to come for it quickly. Gemini has been so strong. It's continuing to drive people and their data and knowledge about everybody from Gmail to web browsing. They can use that to train their AI, they can use that to deploy AI and watch out for them on the enterprise level. I think they're going to be sneaky strong there and continue to grow that.
- [46:41]
Kelly Evans
All right, that brings us to my fav of the week, which is Caterpillar, simply because it's an AI story. But it's also more than that. This month they're up or last month they were up 25%. What do you think of this one?
- [46:51]
Victoria Greene
I'm still holding, buying this stock here because it's being built by Caterpillar. But it's not just the big yellow tractors, right? This is is all about their power and energy. And what you have to do is you have to understand how important it is for a data center not to go down on some of those tier 4 data centers that are the critical infrastructure data center. In a year, they cannot be down more for than 30 minutes. You need those big gas generators, you need those big gas or diesel generators. You have to have that backup power. All about power and energy. They're also getting a lift from all the industrial construction globally and metals and mining and energy. And so you look at this and it's diversified.
- [47:27]
Kelly Evans
Is it full steam ahead for all the markets now?
- [47:29]
Victoria Greene
Yeah.
- [47:29]
Kelly Evans
I mean, is it, they've, they've made their point. That's it.
- [47:32]
Victoria Greene
There's no common rally on, there's no stop in this momentum, get out of the way of the train, stop trying to fight. It is happening.
- [47:38]
Kelly Evans
Victoria, thanks. Good to see you. Victoria Greene. That's it for us. Thank you for watching the Exchange. I'll join Brian Sullivan for Power Lunch right after this quick break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
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Craig Donahue
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