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Software Earnings Set-Up, Big Banks' Big Issues, and Iran Peace Talks Latest 4/14/26
00:44:01
The software names with the most potential for margin upside this earnings season, according to DA Davidson. A mixed bag for bank earnings, and G Squared's Victoria Greene warns that could be a "canary in the coal mine" for the economy. Plus, Israel and Lebanon meet in Washington, while a second round of peace talks between the U.S. and Iran are reportedly in the works.
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- [00:00]
Avalara AI Platform Announcer
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Commercial Narrator
The day begins at the Chase Sapphire Lounge by the club at Boston Logan Airport. You get the clam chowder in San Diego. It's Tostadas New York Espresso Martini. It's 10am why not? It's the quiet before your next flight, the shower that resets your day, the menu that lets you know where you are. This is access to over 1300 airport lounges and every Sapphire Lounge by the club. And one card gets you in Chase Sapphire Reserve now even more rewarding.
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Dominic Chu
Learn more@chase.com Sapphire Reserve cards issued by JP Morgan, Chase bank and a member FDIC subject to credit approval.
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Exchange Show Host
You're listening to the Exchange. Here's today's show.
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Dominic Chu
All right, thanks very much, Scott. Welcome to the Exchange. I'm Dominic Chu in for Kelly Evans. Today. Stocks are higher at this hour with that tech trade and small caps leading the gains, both up more than one and a half percent at this stage. Software is having another big day and I mean big one. Oracle is building on Yesterday's gains up another 4% on the session with deal news alongside Bloom energy now up 18% over the past two days. All of the MAG7 are higher now. Apple had been lagging for most of the day but is now in the green as you can see there as well, autos and airline stocks seeing nice gains on a combination of news including analyst upgrades, merger rumors, lower oil prices all helping the story there and the momentum trade going strong with the iShares Momentum ETF hitting a new all time intraday high. Bloom Energy credo Rob Robinhood. Your outperformers in that trade so far. But we're going to begin with the markets as the S and P fully erases all of its Iran war losses. The Nasdaq is now up more than 4% since the war and the Dow just barely negative. Our next guest remains bullish from here and sees the markets climbing by another 5% before July before growth starts to then slow down. Perhaps here with me now is oh Sang Kwon, the chief equity strategist over at Wells Fargo. This conversation has been daunting. I Mean, if you look at the way markets have performed, who would have thought that now at this stage with the war still going, that if you looked at the indices you'd recovered most of the losses, if not all of them. And those people looking at their 401k balances are pretty much back to where they were at the end of February. What happened?
- [02:49]
Oh Sang Kwon
Yeah, I mean this basically shows that the market and the economy are largely insulated, at least for now, from the oil shock that we saw from Iran. I mean if you look at oil intensity of the economy, it's down 75% since the 1970s and only 1.4% of S& P opex is coming from oil, even at $100 oil. And that's basically in line with the late 90s level when oil was 20 bucks adjusted for inflation. So, you know, I think there's still a lot of tailwinds from the fiscal stimulus from one big beautiful bill that's going to provide cushion at least for the next six months. And I think the market's going to be on a sugar high for the next three months.
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Dominic Chu
So the sugar high is interesting because as you point out, energy does not have a massive influence on the markets. It's a very small sector compared to the other ones in the S&P 500. But it has been a massive outperformer. We are seeing a catch up trade happening with technology amid the sell off that we saw not even since the war began, but even before then. What exactly has been propelling that interest? Renewed interest in tech. And can it last that this time?
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Oh Sang Kwon
Yeah, I mean the answer to your last question is yes, I think, I think tech is going higher. We like the hyperscalers, the Max 7. We were bearish hyperscalers for the past months. We turned bullish recently, a few weeks ago really on the idea that their free cash flow might be inflicting higher. And that was really the reason why we were bearish before that. That free cash flow estimates for 2026 for the max 7 or sorry, the hyperscalers has been cut by 70% over the past year. And now our analysts actually thinks that that number is inflecting higher because their top line is about to accelerate going forward. There's a lot of capacity that's coming online and everyone still says demand outpaces supply. And if that's the case, I think revenue is going to accelerate going forward. And the biggest conviction that I have is the compute power is only going higher. AI is really good. That's essentially what the market is saying through software stocks. And if that's the case, hyperscalers probably not overinvesting and compute power, we're just going to need more compute power going forward.
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Dominic Chu
But that story was also there, to be fair, over the past six months and certainly since the record highs in the NASDAQ that we saw back in October. But there was a souring sentiment about AI, about free cash flow, about OPEX and everything else that was going to happen with there. What exactly then sentiment wise, could change? What exactly was the big catalyst for the shift in narrative away from the bearish side of AI, more towards, hey, maybe it's right sized and growing.
- [05:16]
Oh Sang Kwon
Yeah, so that happened already. We already saw 70% estimate revision down in free cash flow already. We think that's inflecting higher going forward, which is going to be the positive inflection for sentiment. Also, sentiment was really bearish for hyperscalers for the past six months. And that was really the funding short for a lot of hedge funds. And valuation has contracted by about 30% already at the lows for the Nasdaq. So I think this was a valuation reset as well as the positioning reset that we saw in March and now, you know, I think, I think the risk is to the upside going forward.
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Dominic Chu
All right, speaking of the reset, one of the consensus trades that we saw play out over the course of the past several months, maybe even going back to April at this point, was this idea that some folks out there, a lot of folks to be honest, were long semiconductor names and funding those long positions by borrowing and shorting software names. The divergence was massive. It was starting to close at one point over the course of the past couple of months. Do you see that tech trade being that kind of massive split again between hardware type names and software type names?
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Oh Sang Kwon
Yeah, we like the NASDAQ more broadly. And you're right. Over the past, it's almost been three years since Sammy's really started outperforming software. I think software to me is more dead money. I think there has been a value significant valuation reset. I mean, we have a funny chart that shows that software now trades in line with department stores. Right. So basically the retail disruptees versus the digital disruptees are trading at the same multiple. So that's how much software has derated already. That being said, I don't really see that much upside catalyst in software because it wasn't really earnings driven. Right. Earnings continue to revise, get revised higher for software, but the stock continue to deteriorate. So I still like semis over software. But the broader theme that we have is we think a bull market is maturing from a capex driven bull market to a monetization led bull market. So I think we're heading into a healthier phase of this bull market.
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Dominic Chu
Does this then mean that that so called bull broadening out trade for value cyclical sectors is pretty much done. The ones that had been outperforming tech over the past three to five months.
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Oh Sang Kwon
I think for the next three to three months or so, I think a lot of stocks are going to rally together. But as you think about the second half of the year, and there was really our view heading into this year, we said the first half of the year is really going to be driven by reflation and the second half the year is going to be back to air. And we see the same thing happening still. I think that trade is still intact, that we see more risk to growth in the second half of the year. So there's usually about a third three month delay between the oil shock and when growth starts to deteriorate. And that's essentially when the one beautiful bill tax return money gets wiped out in about six months. So I think I see more risk to growth in the second half of the year. And if that's the case, I think the reflation trade that really drove value at cyclicals earlier this year is probably going to slow down as you move into the second half of the year. And we're back to again, this conversation
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Dominic Chu
about the second half of the year will have to continue with us next time because it's a midterm election cycle as well. All kinds of variables. Oh, sorry. Quantity. Wells Fargo, thank you very much. Thank you, we appreciate it. Okay, now tech momentum is continuing. With the NASDAQ closing higher for a ninth consecutive session yesterday, that's its longest daily winning streak since December of 2023. And as we pointed out, software is making a notable turnaround. After a sharp sell off earlier this year. The IGV software ETF is posting its best day in over a year. So what's the setup for that sector heading into earnings? For more, let's bring in Gil Lauria, the head of technology research over at DA Davidson. Gil, this is an interesting conversation because. Oh, Song and I just chatted about software. He calls it dead money. What exactly is the view from your side of things? Let's see if we can get a debate going.
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Gil Lauria
Well, I'll contradict that in a second, but I'll agree with the broad statement that I don't see why the narrative around all of software is going to change AI. The tools are very powerful and they keep coming out with more and more interesting things. So I'm not expecting a broad change in narrative, but there will be groups within soft or individual companies within software that are able to do very well. There's software companies are going to have accelerating growth for the balance of the year. Think Microsoft, Oracle, Snowflake, Datadog. There's going to be pickup in M and A. Think of some of the sellers as being Dynatrace, J. Frog, Elastic, GitLab. And then there's also going to be a category of companies that eat their own food. I won't say dog food that eat their own food and start using AI to really reduce cost and generate a lot of upside to earnings things. Companies like Amplitude, Braze, Zeta have a lot of room where as they deploy AI internally, their margin is going to go up very significantly and they could have very big beats. So those three categories of stocks, revenue acceleration, M and A and earnings upside, those stocks could perform very well for the balance of the year since they're all starting at such low valuations.
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Dominic Chu
If those low valuations are there and that attractive right now and you have to be that hyper specific about the places within software that you have to do it, does it then mean you have to be a little bit more active with regard to how you allocate towards that software trade? In other words, I could just buy IGV or I could not. Is this now the quote unquote stock pickers market?
- [10:54]
Gil Lauria
Yes, on the software side it's a stock pickers market. It's not an IGV call. When you start talking about chips and data center, that's a really broad call that the positive inflection in AI and the usage and the ramp in the results of some of these frontier model companies that's going to have broad benefits across chips in video, Broadcom, AMD, Micron, etc. Where on the IGV side the narrative will remain negative for a while. It's just specific companies that can outperform this year for the balance of the year.
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Dominic Chu
All right now your coverage universe is rather expansive. So as you kind of kind of tear out your decile out your quartile out the coverage universe, are there extreme favorites that you have in this? Should we be still looking at some of those larger mega cap type software names or do we have to become a little bit more idiosyncratic with regard to some of the smaller mid cap names that might have more upside potential because of their earnings growth trajectory.
- [12:01]
Gil Lauria
I would argue that some of the best performance should come from the very top. To the point of the conversation you had earlier, some of the mega caps have really underperformed over the last few months. So now you have a situation where Microsoft and Nvidia are trading at market multiples. These are the two companies that have captured the most value in AI and will likely continue to capture the most value in AI. And they're going to grow very significant. Microsoft Close to 20% in video, somewhere between 40 and 60%. And yet they're trading at a market multiple. So those may actually be the best opportunities since it's very unlikely that I will be successful with those without those two companies.
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Dominic Chu
All right, Hyperscalers and Nvidia still a focus there. Gil Laurie of DA Davidson, thank you very much. We'll see you soon, sir. All right. Coming up on the show, day two of bank earnings season failing to impress investors. Citigroup is the only name in the green on that board so far. But why is the group lagging? Is it bank specific or a possible canary in the coal mine situation? That story is coming up next and as we head out to break, some nice gains across the alt asset space. As you can see there, a Blue Owl private credit fund raising $400 million from bond investors marking the first deal of its kind in over a month. Shares of Blue Owl, as you can see, they're up 7 Aries and Blackstone on the private side of things. Also higher as well. Moves higher for private capital. The exchanges back after this.
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Commercial Narrator
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- [14:11]
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Megan Casella
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Sema Modi
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Dominic Chu
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Dominic Chu
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- [15:07]
Dominic Chu
Try it@8sleep.com it's been a mixed trade so far for shares of JP Morgan Chase, Wells Fargo and Citi following their respective earnings reports. So Leslie Picker joins us now to dig into those results and maybe why some of the idiosyncratic points are sticking out for certain investors, especially when it comes to say, a Wells Fargo versus a Citi.
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Leslie Picker
Leslie yeah, you're spot on, Dom. It's very much the micro that's the story this quarter. Wells Fargo the biggest laggard this morning today down about four and a half percent with Mrs. On the top line as well as for net interest income. That's course that profitability metric for loan making rates causing JP Morgan to pare back its NII guidance for the year now back to $103 billion including markets Citi outperforming, you can see up 3% right now with beats pretty much across the board there, although provisions for loan losses a bit higher due to credit cards and a reserve bill. Speaking of credit quality, a lot of commentary across the calls to today and yesterday about private credit. JP Morgan Chairman and CEO Jamie Dimon saying, quote, the actual credit hasn't gotten worse, although he said there are pockets where it has.
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Dominic Chu
I don't think it's systemic, but I do think with the credit cycle, and I'm not referring to private credit here because of underwriting and leverage and picks and competition and we've had a cycle for a long time. A lot of people late to this game. I just don't expect every player is going to be the same. I think some will be. It won't be a bell curve. It'll be something different than that. And people may be surprised that some of the players aren't particularly good at it.
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Leslie Picker
Wells Fargo including a new slide today detailing the granularity of their private credit exposure. The firm disclosed $36.2 billion of loans to private credit funds out of about a trillion dollar balance sheet software comprising 17% of that private credit collateral. Business services is about 19% and health care 15% for Wells Fargo exposure. Now tomorrow we'll round out the big bank earnings with bank of America and Morgan Stanley.
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Dominic Chu
John all right Leslie Picker there with the state of play on banks early in the season. Thank you very much for that. Financials are the worst performing S&P 500 sector so far this year, down by more than 5% since January. Our next guest warns that if banks cannot rally on the back of strong earnings reports, it would be a canary in the coal mine sign for the overall economy. For more on that case, let's bring in Victoria Green, G Squared Private wealth cio. She's also a CNBC contributor. Victoria, thank you so much. Leslie laid it out kind of very well here with regard to the early part of the reports in this season. What exactly is the canary in a coal mine aspect? If it's NII related net interest income, if it's loan loss provisions, if it's outright capital markets beaten misses what exactly would you be watching out for?
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Exchange Show Host
Sure. It's just that sometimes where the financial sector goes, the S and P end up following it later. Especially if you look at different crises that came from the credit side of the world. Obviously 2008, you know financials were famously selling off in 2007 we all ignored that. You go back to 2011 when we had the euro crisis and the debt crisis. Financials again front ran that a couple of months and then obviously with the Silicon Valley banks, you know, you were already seeing stress in the banks before the market followed it. So we are watching this. Is this a canary in the coal mine moment? Are the financial sector telling us hey there's more stress in the system. That's why we're not able to rally because we are concerned of a credit event. And obviously the whole elephant in the room here it's what's going to happen with private credit. And they wrote coming off of COVID when everything was dirt cheap and you had a bunch of capital pouring into these sectors and everybody started writing and not really doing his best, best underwriting in 2020 and 2021. And I think we're starting to see some of those loans hit those books right now. I mean we just saw Red Lobster today. I think I saw that article that they wrote that down from 98 cents to zero just today.
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Dominic Chu
So. So credit cycles are certainly something people are focused on vis a vis that bank trade overall. You know Giluria, we spoke to him earlier about the tech trade and he mentioned that this is certainly more of a stock pickers market than just say buying a sector or industry etf. When it comes to the financials, your view is are we safe just buying bank ETFs or financials, ETFs, or do you have to become more granular about how you pick these particular stocks?
- [19:34]
Exchange Show Host
Absolutely, you need to be granular. And look what's happening today between Citi and Wells Fargo. One company that's executing well on their turnaround, another company that's struggling even with a lot of the regulatory constraints behind it. Wells Fargo disappointed everybody today. Citi executed well. You know, we saw Goldman stumble yesterday with their fixed income and currency trading, but their equity trading and dealmaking was so strong. And JP Morgan stuck a little bit today with the interest income. But again, $4 trillion huge bank. We always consider JP Morgan our port in the store bank. If you want to own a Bank, you own J.P. morgan, right? You own Goldman for their trading and dealmaking. And now you're looking at Citi as a potential very strong hold here in the financial sector. I think you do need to be picky. You need to understand their exposure and what are their drivers of this revenue. How durable are these revenues and the trading revenues that they just generated in Q1. Can they continue to execute on this for the rest of the year? And the markets have been mixed on that. So I think some of this is saying, okay, what are you going to do for me going forward? If net interest income compresses, we don't get any, you know, the rate situation doesn't help you whatsoever. We have some credit concerns, you know, we have some pressure on consumer spending. What is this going to do for bank earnings? And I think you're seeing that with, with some of these reactions today. So be picky. I tend to lean a little bit more into quality whenever we see times of stress. And I'm not going overweight yet. You know, it's the second largest sector in the S&P 500, about 12.6% weighting. It's not an inconsequential sector. I'm not moving overweight yet. I think there might be a little bit of a washout as we see what plays out here with private credit.
- [21:02]
Dominic Chu
Victoria, if I could ask you for your top pick within those banks and the one that you would stay the most away from, what would they be? Both sides of the spectrum for me.
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Exchange Show Host
I love J.P. morgan. I'm going to ride or die with them. For four years we've been a long term holder. They're just such a quality bank and such a well run bank on risk management. Hopefully Jamie wins his argument against Basel 3 regulations and they get their 20 billion back. On the other side, the ones I don't want to own. Not a big fan of Wells, not a big fan of some of the others. Like Capital Farm or not Capital Farm, I apologize, Capital One, you know, on the lower end on the banking or Ally, you know, I think they're going to see a little bit more stress and a little bit more stress on their consumers than say an upper end echelon bank like a JP Morgan Chase.
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Dominic Chu
All right, Victoria Green, G Squared Private wealth on the bank trades. Thank you very much for that. Coming up on the show, Bloom Energy shares are soaring and pacing for their best day since October as Oracle extends its deal to buy fuel cell power from that company. What the move means for Oracle coming up next. The Exchange is back after this.
- [22:06]
Avalara AI Platform Announcer
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- [22:36]
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- [23:36]
Dominic Chu
welcome back to the Exchange. We're going streaking. Well the markets are anyways, as things currently stand, we are on pace for what could be 10 straight days worth of gains in the tech heavier NASDAQ 100 index. Now during that span, the Invesco QQQ ETF which tracks that index has gained roughly 12% in that move higher and we're just again just a few percentage points away. 1 1/2 percentage points away from a record high that we saw last last time back in October 29th. Now one of the big drivers of that tech trade has been those computer chip stocks. As we alluded to earlier, the Vaneck Vectors Semiconductor ETF ticker SMH is also on pace for its 10th straight daily gain. And during that streak, that fund has doubled the 10 day return of the NASDAQ 100 ETF because this run is 24% on that move higher. And then continuing on that streaking theme, some of the most important stocks behind those index moves have been on terror as of late. Nvidia and AMD are both working on their own 10 day winning streaks. Amazon is working on a 7 day upside run and then Facebook parent company Meta Platforms is on pace for a six day run of its own. Qualcomm and Netflix are both on five day runs. You get the idea here. So keep an eye on those big winning streaks now. Oracle is expanding its deal with Bloom Energy just days after receiving a $400 million stock warrant. The news is sending shares of both stocks higher today. Our SEMA Modi has the big story in that big power tie up sema
- [25:05]
Sema Modi
and it's a big one, Dom. Oracle deepening its relationship with Bloom Energy underscores the insatiable demand for energy security as the latest chips do require more power. The hyperscalers are in a rush now to ink more deals with energy providers. To get that on site power generation, take a look at Google with Total Energies Matter with Constellation, Amazon with its Nuclear Small Modular Reactor partnership. Oracle's tie up with Bloom specifically Bill builds on a July agreement when the two companies first came together to bring fuel cell technology to power its data centers. Experts highlight the benefits of fuel cells they're quick to implement, reducing the likelihood of delays, less noisy the generators and more environmentally friendly. Analysts say that is key given the recent pushback from local and state jurisdictions. Case in Point Maine looking to implement a statewide ban on data center construction. But this deal Dom suggests Oracle is not slowing down its ambitions. $50 billion in debt and equity being raised, a new chief financial officer who brings in deep experience in power and energy and energy from Schneider Electric. The company continues to put money where it sees opportunity and that is and the market is responding positively.
- [26:15]
Dominic Chu
How much SEMA have investors either moved away from or evolved their views of the capital spending picture and some of the maybe capital structure adjustments that have to be made at Oracle with regard to debt and equity finance raises and everything else about paying for all of this?
- [26:35]
Sema Modi
Well, following that $50 billion debt and equity raise that was announced in January, the company then in February said it had no plans to raise additional debt this year. So since then, the conversation has shifted to what are you spending the money on? And I think this deal with Bloom Energy is reflective of how Oracle sees energy as a key priority as it looks to expand its data center pipeline and become more competitive with other hyperscalers that, as we were just mentioning, are also investing in on site power generation. So the conversation now is expanding, Dom, around CapEx, not just to the GPUs that all these hyperscalers are buying and borrowing, but to what type of energy resources they have to ensure that these data centers can be powered up and be able to run these AI models.
- [27:17]
Dominic Chu
The power play in AI vis a vis Oracle and Bloom Energy. Thank you very much, Sima, for the report there. We appreciate it. Now to Pippa Stevens for a CNBC news update. Good afternoon, Pippa.
- [27:27]
Pippa Stevens
Hey, John. Former White House Chief of Staff Mark Meadows is asking the Justice Department to reimburse him for legal fees he incurred from investigations into President Trump. That's according to CBS News, citing sources familiar Meadows was a key supporter of Trump's efforts to overturn the 2020 election. The request was made by his attorney in early February, according to the report. It is not currently known how much money Meadows is seeking or whether the DOJ plans on honoring his request. Harvey Weinstein is once again going on trial on a rape charge in New York City. Jury selection is set to start as soon as today. Jurors will weigh for the third time whether he sexually assaulted Jessica Mann in 2013. This time around, the focus will be on only one charge based on one accuser rather than multiple allegations. And a former adviser to Mike Pence is launching a bid for Congress as a Democrat. Olivia Troy resigned from the White House in 2020 and became a vocal critic of President Trump. She's set to run in Virginia's new 7th congressional district and faces a crowded primary field. Dom, I'll send it back to you.
- [28:31]
Dominic Chu
All right, Pippa, thank you very much for the news update there. Coming up on the show, more U. S. Iran peace talks reportedly are in the works while Israel and Lebanon are at the negotiating table for the first time in decades. The latest in what it could mean for the US Its involvement in the Middle east and everything else next. The exchange is back after this. All right. Welcome back to the show. Secretary of State Marco Rubio is hosting a meeting with the ambassadors of Israel and Lebanon in Washington, D.C. today, while another round of peace talks between the U.S. and Iran is reportedly in the works. Megan Casella joins us now with the Latest on all of the meetings and progress. Megan.
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Megan Casella
Hey, Dom. So these trilateral talks with the U.S. israel and Lebanon, these are aimed at clearing up what has been a major sticking point in the U. S. Iran negotiations and that's Israel's ongoing attacks against Hezbollah in Lebanon. Secretary of State Marco Rubio sat down with Israel's and Lebanon's ambassadors to the US earlier today and he told reporters that the meeting was focused on bringing a permanent end to Hezbollah's influence in the Middle East. Now, Rubio acknowledged that nothing would be solved today but said that the goal was to build a framework that could ultimately lead to resolution. The immediate question, though, is whether Israel can be convinced to at least pause its attacks in Lebanon. Remember, Iran believed that was part of the ceasefire deal. Israel has insisted it was not. And that disagreement is one of the biggest threats to the fragile truce that we're in now. And then in the meantime, the US Is carrying out its military blockade of Iranian ports. And U.S. central Command said in a statement this morning that in its first 24 hours no ships made it past the US blockade and six merchant vessels complied with direction from US forces to turn around and reenter an Iranian port on the Gulf of Oman. And then as for the path forward, a number of reports out now about what meetings may or may not be scheduled for now. A White House official telling CNBC that a second round of talk was collapse between the US And Iran is under discussion, but that nothing has officially been scheduled. Dom.
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Dominic Chu
All right, Megan Casella there with the latest on the state of play vis a vis the Middle East. Thank you very for that. Thank you very much for that. Now oil is slipping below $93 a barrel on the possibility of a second round of those peace talks with Iran. Our next guest expects the cease fire to be extended as negotiations continue, but also says Iran will get more aggressive if the blockade is still in place when the 150 million barrels of its own oil currently on international waters and the revenue that goes along with it are depleted. So joining me now for this conversation is Jonathan Pannikoff, director of the Snowcroft Middle East Security Initiative at the Atlantic Council, someone we turn to for some color and context on the Middle East. Jonathan, you heard Megan's report here with regard to just what could happen between the US And Iran. How critical is Israel and Hezbollah to this conversation about the US And Iran and the Strait of Hormuz?
- [31:27]
Jonathan Panikoff
Great to be with you. Look, it's probably not going to rise or fall on the Israel Lebanon conflict, but it's going to be part of it. The reality is if Israeli strikes continue, then it frankly gives another excuse for Iran not to engage in negotiations. It becomes another state sticking point. I don't think the issues between Israel, Hezbollah, Lebanon, more broadly have to be resolved, but they probably do have to be tamped down. And I think that's what Secretary Rubio was aiming at here, to try to create a situation where there's at least enough space for US, Iran cease fire talks to be able to continue without the Hezbollah, Israel long time war somehow interfering.
- [32:09]
Dominic Chu
Just how much influence and how much capital does the US Senator, Secretary Rubio and others, how much do they need to spend on Israel and Hezbollah vis a vis this? Do they make this a priority? I know it's part of the puzzle, but just how much effort goes into something like this?
- [32:28]
Jonathan Panikoff
Yeah, I think it's going to be enough to try to get them to both take a break. In other words, look on the Israeli side, the US clearly has significantly made more ability to influence this in the near term. Not the long term, but the near term. Given how close the US and Israelis militaries have been working together related to the Iran war, the relationship between Prime Minister Netanyahu and President Trump, I think the US really feels like, look, if it can get Israel to stop strikes in Lebanon right now, then it's most likely that Hezbollah will also halt as well. But it's not a guarantee. And the reality is Lebanon, the state of Lebanon has very little control over Hezbollah. It's been a long term problem. It's been a long term frustration by the US and by Israel that frankly the Lebanese armed forces haven't been more aggressive in trying to take on Hezbollah, especially over the last 12 months.
- [33:25]
Dominic Chu
Jonathan, we're showing oil prices right now and the way that they're moving, it may be somewhat implies that things are cooling off a little bit with regard to the aggression. And maybe this idea that the US now effectively asserts control over the Strait of Hormuz without any kind of international coalition backing it up, that implies now that the only two players involved in the Strait of Hormuz are basically the US Navy and the Iranian Revolutionary Guard Corps. Is that a safe assumption to make? And if so, how exactly do the scenarios play out with both the US and Iran trying to control the Strait?
- [34:05]
Jonathan Panikoff
I think it's a safe assumption for the short term. In other words, look, right now I think there's another week left in the current cease fire. I do think that there's potential that if negotiations either in the next couple of days or this weekend do go ahead and start to make progress, you could see an extension of that. And so you also combine that with the fact of what you said up top. The Iranians have over, I think, 157 million barrels of oil on the water right now. So revenues aren't going to be cut off immediately. But if you don't get an agreement and you have a situation the next two or three weeks where there's, where there's a challenge because the Iranians don't have any revenue coming in, they can't get oil out, then all of a sudden I think they're going to be faced with a decision about whether they need to increase the cost costs to the US and to international allies and Gulf allies. And that means striking regional Gulf energy infrastructure means going after the U.S. and so the blockade right now is in its very early hours, frankly, and it's obviously limited to Iranian ports. You're going to see ships going in and out, in theory that can go to the UAE or Oman. So the question still becomes how this plays out. Right now, I think nobody's willing to really heavily break the cease fire. I think they want to see if negotiations can create the opening to move this conflict and to end it. But if it doesn't work soon, it'll get more difficult.
- [35:34]
Dominic Chu
This is long term, Jonathan. This is a much bigger, I mean, we don't have the time to go through all of it. But I wonder, is there a scenario ever in the future where the Strait of Hormuz functions more akin to what's happening with the Suez Canal? Is there anything that could happen that makes this a commercially viable and at least a cooperative agreement to kind of keep the Strait of Hormuz open for a passageway like we see in other parts of the world?
- [35:59]
Jonathan Panikoff
I think it's possible. It's going to be a challenge. I mean, this is now all of a sudden strategically the best leverage the Iranians have had in years. And they've shown that not only can this impact the US And Europe, that this impacts the entirety of the global economic and commercial trade, maritime efforts, frankly, to go through the straits. And so they're going to be hard pressed to just trade it. I think this comes down to a question to then therefore, long term, look, do you have to have an international coalition, even if European states, East Asian states resent how they were pulled into this, do they have no choice that in order to keep the straight open in the type of Suez like effort that you're saying that they engage and so even if the Iranians take some money or you have a toll road that it's not completely free like it was before the conflict, at least it's navigable. At least people know with confidence that their ships can get through. Insurance companies know that the ships will get through. There's not they're not going to be under permanent threat. All of that is still to be worked out. And it's a real challenge going forward.
- [37:03]
Dominic Chu
All right. Benchmark crude prices, as you can see on the screen, they're drifting towards session lows right now. Jonathan Panikoff with the Atlantic Council, thank you very much, sir.
- [37:11]
Jonathan Panikoff
Thank you.
- [37:11]
Dominic Chu
All right. Coming up on the show, Maine's data center ban, just one example of the growing AI blacklash that's out there across the country. We're going to dig into the shifting sentiment around that tech trade as major players like OpenAI and Anthropic prepare to try to go public. And speaking of open air, shares of Novo Nordisk are up more than 3% on news it is partnering with the AI startup to, quote, bring new and better treatment, treatment options to patients faster. Novo is on pace for its best day in two weeks. The exchange is back after this. From data center bans to plummeting public perception, AI companies are facing increasing backlash ahead of what could be historic public debuts. Kate Rooney has more on today's tech check on data centers. And I Kate Hey, Dom.
- [38:01]
AT&T Business Wireless Announcer
So the mood around this technology is increasingly negative. Investors do see that as a real threat, as Opening Eye and Anthropica especially look to go public. Plus, you've got big tech which does plan to spend hundreds of billions of dollars just this year on that data center. Build out the latest signal, an attack on OpenAI CEO Sam Altman. A man is now facing attempted murder charges after throwing a Molotov cocktail at Altman San Francisco home. Prosecutors say it was motivated by a hatred of AI. Altman did respond to this over the weekend, acknowledging anti technology sentiments. He says clearly this technology isn't good for everyone. He and Anthropic CEO are among those intact that have warned of widespread unemployment and some social unrest as this technology really takes off. Feelings, though around I do appear to be getting worse. Nationwide. You've got recent polls from both NBC News and Quinnipiac showing more than half of Americans now say the risk of AI outweighs the benefit the tech, they say, or at least according to these polls, will do more harm than good. Pew shows some similar trends. And that is all, Dom, spilling over to the data Center. Build out 48 projects totaling at least $156 billion were blocked last year, at least delayed according to some sources, ranging from local opposition. You had litigation as a cause as well. And just the past week alone you've got a handful of projects been called off. You had a $6 billion Missouri plan and then Maine moving forward with a statewide data center ban. It does come ahead of midterms, where is also expected to come up in that and really be on the ballot as a key issue. As for some of the companies and the impact I mentioned, OpenAI at least has framed compute, which does include data centers as a strategic advantage as they battle anthropic. You have the hyperscalers, Amazon, Google, Microsoft also have major data center commitments. And then finally the IPO. So OpenAI at least has told us that it is going to be reserving a portion of its eventual allocation in an IPO for retail investors. Where Dom, you know better than anybody, sentiment really matters when these are publicly traded names.
- [40:02]
Dominic Chu
Absolutely, Kate, there's no doubt about that. Speaking of that sentiment and that kind of public relations aspect, I've spoken to at least a couple of data center CEOs who keep telling me that, you know, a lot of the reason why people have this fear is that there's a gap in information about what data centers really do versus what the public understands or knows. How exactly does that kind of reconcile ahead of this big election season?
- [40:25]
AT&T Business Wireless Announcer
I think that is a good point. You're seeing it on sort of a micro level on like with these pushbacks on the data centers. If you go to any of these data centers, it really is an empty warehouse with a bunch of, bunch of computers essentially is a way to think about it. The issues you hear are noise. You hear about the community impact, what the jobs are actually going to look like. And you're seeing some of the companies really try to get ahead of this. I think of Amazon, it's got a 25 billion dollar statewide project that they just announced and they really the first thing they say in these press releases, we're actually investing in stem. We're going to make sure that energy prices don't go up. So you do have this disconnect. A lot of this is going to be on communication on the company side saying, hey, here's the actual impact, here's what we're doing to also make sure that there is not an impact. Energy prices is the other big one we should mention where people are worried, where they see a data center go up and say, wait a minute, what is that going to mean, you know, for my PG bill out here, for example. So I think that the companies, there's a big onus on them. And then also on the political side, is it politically popular to fight back against the data center? And I do feel like we're moving towards that with the midterms. And it will definitely be a topic of discussion. You're already seeing it in Maine, a
- [41:35]
Dominic Chu
very public debate for sure. Kate Rooney with the latest there. Thank you very much with our tech check today. Coming up, American airline shares are on pace for their best day since August on reported reports. Reports that United is possibly considering a merger deal. What a deal between the number one and number three carriers could look like. And would it pass regulatory scrutiny that coming up next. Welcome back to the Exchange. United Airlines CEO Scott Kirby reportedly pitching a tie up between United Airlines and American Airlines. Philippeau has the details. Phil, could this be perceivably happen?
- [42:13]
Philippeau
Theoretically, yeah, anything's possible, Dom. But most people that I've talked with have said, look, it's a long shot at best. And let's be clear here. When you look at this story, the important word to consider is that Scott Kirby has mentioned or floated the idea of a potential deal with American Airlines to Trump administration sources or executives, including the president. Those are the reports that are out there. He hasn't made a deal or a pitch to American Airlines. Both airlines have declined to comment. And again, I can't stress this enough. There are no talks between United and American right now if American were to be acquired. And I want you to wrap your head around this a little bit. It is the largest airline in the United States. And when you look at its hubs and its market share, we're just showing you five of their larger ones here. You think regulators are gonna sit there and say, yeah, go ahead. You can take Chicago or Dallas or Miami. They have a huge presence in all these cities. We're not even including Charlotte and Phoenix, two of their other big hubs. One thing that United does have going for itself, if it were to pursue this and they were to go to American or to American investors, they could sit there and say, now, look, this is not an airline that has been successful. Look at the market cap between United compared to American. No comparison at all right now. Part of the problem here is that American has a lot of debt and it's just not as profitable as United Airlines. Look at the last two years, profitability has soared for United Airlines. That's not been the case at American. United last year, $3.35 billion net profit. What was the net profit at American airlines last year? $111 million. So, Dom, that is the story here. Again, I can't stress this enough. There has been no formal proposal. There's no talks going on here. What this is is the word got leaked out, maybe on purpose, that Scott Kirby is interested in acquiring American Airlines and has mentioned this to the Trump administration. As you know, I talked with the Secretary of Transportation last week and he said, yeah, we'd be open to a deal if it's the right deal and if it makes sense for consumers and for the industry. But we're a long ways from seeing something form and actually take place.
- [44:25]
Dominic Chu
All right. And of course, you juxtapose that against a deal that was killed for Spirit and JetBlue and everything else kind of gets a little bit more confusing there. Phil, thank you very much for the update. We appreciate it. And while a deal between the two airlines is far from certain, as Phil points out, deal making activity, though, has actually picked up this year, believe it or not. Just today, Amazon announcing it will buy satellite operator Global Star as advised to compete with Elon Musk's SpaceX. Shares of both Amazon and Global Star are higher on the news. So joining me now to discuss whether the momentum will continue is Dan Primack, business editor over at Axios. Deal making is happening. It just has been put on hold for the past couple of months given the Middle east and everything else that's associated with it. So can we expect the back half of this year to actually see a pickup in activity, even with growth, slowdown concerns and of course, a midterm election cycle coming up?
- [45:16]
Dan Primack
Yeah, I think we can, you know, again, things slow down a little bit with Iran, although it's picked back up again. Again, we're up in the U.S. i think it's about 50 something percent this year over last year, which again was the first part of the Trump administration. So it's not like you're comparing Biden to Trump. It's over Trump. And I think the United American thing is kind of instructive. Not, you know, everything Phil said was correct about kind of the consolidation in the market share. But what's notable is that Kirby floated it directly to Trump. And I think that shows kind of this new world in which everybody understands that antitrust now is top down. You don't go to lower level officials anymore. A lot of them at DOJ have either been fired or forced to resign. This all comes from the White House now and from the top. And if You're a dealmaker and you can kind of get in his ear. There is value there.
- [46:02]
Dominic Chu
All right, what exactly does it say then about this particular administration and its future? I guess anti monopoly type behavior, its regulatory behavior. If in the beginning, when President Trump was first going through the election cycle and got elected this time around, that there was a perceived benefit to companies because of a more relaxed regulatory environment, has that played out largely in your mind or will it play out differently in the coming months given what we've seen from the administration so far?
- [46:34]
Dan Primack
It has played out. It's ultimately played out. You know, when he caught back for starters, in Trump won in his first term. It was actually pretty tough when it came to antitrust, particularly when it came to tech companies. In the beginning of this term, it seemed like that was going to continue. You know, J.D. vance was very big on breaking up big tech companies. He named Gail Slater as head of DOJ's antitrust unit and she was considered to be a hawk, but she's out. And it really does seem a bit like the Wild west right now.
- [47:00]
Dominic Chu
All right, what types of deals, what types of industries do you think will get more of a green light in this coming administration?
- [47:07]
Dan Primack
I don't think it's about getting more. I legitimately think it's kind of across the board. I mean, look at what we've seen recently. Recently, right? We saw the HP deal get done over antitrust approval. That's a tech deal. You see the in this wasn't a deal per se, but the Live Nation, Ticketmaster situation, that breakup, at least in terms of as far as the feds were concerned, that got stopped. That's about live events.
- [47:26]
Dominic Chu
Right.
- [47:26]
Dan Primack
We don't know what will happen in the airline sector. But as Phil said, Sean Duffy did say the Transportation Secretary, that they were at least open to tie ups.
- [47:34]
Dominic Chu
Sure.
- [47:34]
Dan Primack
The Biden administration clearly not because they blocked JetBlue Spirit, which was a much smaller deal than American United would ever be.
- [47:40]
Dominic Chu
All right. Complex for sure. Axios is Dan Primack, thank you very much. Thanks for watching us in the Exchange. Power Lunch picks it up right after this quick break.
- [47:52]
Exchange Show Host
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