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- [00:00]
Narrator/Announcer
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 Market Update podcast or find Schwab Market Update wherever you get your podcasts.
- [00:29]
Kelly Evans
Looking for a Valentine's gift she'll truly love? 1-800-flowers.com knows what she wants. For 50 years, 1-800-flowers has helped guys like you get it right, delivering millions of fresh Valentine's roses nationwide. 1-800-Flowers offers premium fresh cut flowers backed by their seven day freshness guarantee plus same day delivery when you need them on time. Valentine's is coming up and bouquets are selling fast, so don't wait on this order today at 1-800-FLowers.com. sXM. That's 1-800-FLowers. Com SXM. Thank you very much. Frank Claude's clout, is it terminal or is it temporary? And where could it be? Creating some opportunity. Welcome to the Exchange today. I'm Kelly Evans and let's take a look at this market which is rather ugly, especially for the nasdaq. Again, we're mixed overall with the Dow trying to hold on to slight seven point gains this hour. The S and p is down a percent, the Nasdaq is down more than 2%. And yes, the broader software names remain under pressure, although pockets of IT are coming back now, including Legal Tech that got hit hard yesterday. The CEO of LegalZoom down 20% yesterday and trying to bounce back about 2% today. They will join us live ahead. The semis. That's what's new here. They're also under significant pressure today. The semi ETF is down 5% percent and AMD is down 17% despite a beat on the top and bottom line. The bar was high into the print though, with the stock up 70% in a year. And keep an eye on Bitcoin. It's still hovering around $74,000. And as soon as I say that it's down 5% again, in fact just 70. It's now dropped almost 14% this week, making it the worst week in probably more than a year. But we begin today with the slump in software. Adobe, ServiceNow, Salesforce, DocuSign all down more than 5% this week as AI threatens to disrupt the industry. All four of these names are off by more than 20% just since January 1st. And our next guest Says that while the selling continues, investors should look to get in on the names will benefit the most from growth in AI. Joining us for more is Brooke Dane, Goldman Sachs Asset Management co head of Public Tech Investing. It's great to have you here. Welcome.
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Brooke Dane
Awesome to be back.
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Kelly Evans
Hopefully that was an expansive enough lay of the land.
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Jeff Stibel
Yeah.
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Kelly Evans
What does it tell you?
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Brooke Dane
So you know, I think from our perspective, first you have to remember where we are in this cycle. We're still super early in the build out of AI and that has implications for both the hardware infrastructure pieces of things and the software stack. So on the hardware side, you know, our forecasts are that we're entering another year of super big capex and so consensus is looking for capex numbers out of the big five of up like 40%. We think it's closer to 65% this year. As you know, Metta, Google, Microsoft, Amazon, OpenAI all commit to spending huge capital to push the frontier forward. So we think there's opportunities around that and I'm sure we'll get into that in a minute about where we see that. But then on the software side, we're at this awkward period where you can see how these models are getting much better and you know that Agentic is coming and going to be impactful across the entire ecosystem. But deciding who wins and loses from that is tricky and we're at the early stage of that. The market has taken the first approach of just saying get me out of everything.
- [03:38]
Kelly Evans
Right.
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Brooke Dane
We think that's the wrong answer. We think we're getting opportunities to buy names that are going to come out the other side of this stronger and better.
- [03:45]
Kelly Evans
Rarely look does the market give you an opportunity like whenever you see selling 5, 6, 7, 10, 15% across the board. And I saw a couple of the names out there, Snowflake for instance, what's. What's iot? Mongo I think, I mean why do those stand out to you?
- [03:58]
Jeff Stibel
Yeah, so when you, when we think.
- [03:59]
Brooke Dane
About how the opportunity software is going to evolve, there's a couple things that we are laser focused on. So first, what companies are going to benefit from the rollout of these models? That's largely companies that are helping the data ecosystem move forward. So Snowflake and Mongo are two great examples of that. Snowflake is basically helping every enterprise get their data in the right kind of state to be managed to be tuned in these models and that's driving an acceleration in their business. They and databricks are running away with.
- [04:24]
Kelly Evans
This market and Snowflake's down seven and a half percent again today.
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Aaron Levy
Today.
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Brooke Dane
Because people are just worried about, you know, they don't understand what's happening and they're shooting first and asking questions when.
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Kelly Evans
When those who are shooting are saying it doesn't matter if they're helping with the data ecosystem because you fill in.
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Brooke Dane
The blank number, software is just going to go away. These agents are going to place all.
- [04:42]
Kelly Evans
Of software or even maybe it's less existential than that and it's just fewer added seats, fewer add ons, you know, less kind of stickiness of the model.
- [04:51]
Brooke Dane
But when you look at specifically with Snowflake and Mongo, they're not seat based prices, they're consumption based prices. So as people are using more data and touching more data, their revenue is going to grow. And we think both those companies have big advantages in this new world.
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Kelly Evans
What about IoT?
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Brooke Dane
So IoT is a slightly different story. They are in the market of doing fleet management, telematics, those sort of things. But what their real advantage is is they're embedded in these businesses that need their technical help. When you think of where agentic technology is happening and where it's going, it's not going to be impacting the people that are running a fleet of petroleum trucks or that are doing asset management for tagging of generators in the field. IoT Samsara has done a huge amount of work about building AI functionality into their core product so that they can go to these businesses and help with predictive maintenance or safety training and things like that. And that actually for them is going to allow them to upsell and cross sell into this installed base at a much faster rate than we would have thought of before.
- [05:49]
Kelly Evans
I want to ask you, I don't know if you can answer it, but maybe you can answer it broadly or you can be specific, whatever you want. What about the likes of Salesforce? Just to pick the elephant in the room, you know, down on a five year basis and centering Dow. And yet if you look into next year it looks like it's still going to have 9% revenue growth similar to last year, 33, 34% operating margin perhaps. And this stock has been cut in half over the past 15 months and the multiples down 20 points.
- [06:13]
Brooke Dane
Yeah, exactly. So the application space in general is at the focus of this storm as people begin to wonder about, you know, what's the value of a systems of record company and how much can this be replaced. We think it's really important first of all for investors to be positioned correctly across that entire space. And not be making a massive bet one way or another across applications because it is so uncertain right now, you.
- [06:36]
Kelly Evans
Think, in other words, there's a legitimate case to be made that a company like Salesforce, you know, so I don't.
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Brooke Dane
Want to talk about Salesforce specifically in this instance, but what I would just say is, is that the bear narrative is, is that the long term annuity value of an applications company might be not as big as we thought it was. I personally think that as we move through this generation that will largely be disproven.
- [06:56]
Kelly Evans
You do?
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Brooke Dane
But we're going to have to see growth and traction across time.
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Kelly Evans
And because we're going to extend this discussion throughout the show today, tomorrow. Why do you think that those who are piling on these stocks right now saying you can question those that revenue stream, why do you think it's going to prove actually sticky and resilient?
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Brooke Dane
So the data advantage that some applications companies have is real and durable. And so understanding your core customer's workflow, understanding the processes and their individual data in a way you can serve it up and use it, is going to enable you to have better agentic technology than somebody else. So what we start with for our analysis is where do we think companies have that data advantage? Where do we think they have unique sets that they can tap in that their agentic technologies are going to be better than an open ended models technology? So that's what we're looking for as we kind of through this environment where things have been massively and we mentioned.
- [07:52]
Kelly Evans
Some of the names you're looking at. It's not as if you're obsessed with the software space right now either. I don't want to paint it that way because on a day when AMD is down 16%, you've got exposure to some of the semi in chip space. You've got kla, you've got amad. Yeah. Are you sticking with those two? Is there anything going on here?
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Aaron Levy
Yeah, so.
- [08:08]
Brooke Dane
So, you know, we feel really comfortable about this infrastructure build out. Even more comfortable than we are about the application space frankly. You know, every time we Talk with the CFOs and the CEOs of the big frontier model companies, their commitment to spending on this build out only goes up. So the backdrop there is it's almost the inverse of software where there isn't a question about you know, is this getting replaced, it's a question of how much and how fast is the build going to happen. What we're looking for there then is where are their key capacity Constraints, one of them right now is in the actual build out of manufacturing capacity for semis that benefits semicap greatly. You know, you're seeing incredible tightness across memory and in terms of, you know, the logic chips that are happening, we think that you're going to, as you move through 2016 into 27, you can see an acceleration of equipment build outs into the clean rooms are getting built. So that sets up a really nice backdrop for semicap equipment.
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Kelly Evans
Yeah.
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Brooke Dane
And then when you think about the core microprocessor companies, again, we think that, sure. When you look at AMD's numbers, the reason the stock's down is there was a little bit of noise around their China revenue and there were some concerns about this year's growth of the data center business. We don't think either one of those is a durable question from our mind. So if you have a long horizon and you understand kind of what you think the opportunity is, we think there's a great opportunity in a company like amd.
- [09:19]
Kelly Evans
All right, Brooke, it's been great to have you. Really appreciate your time today. Brooklyn, I should mention you also like doordash. You know, Meta Texas Instruments. You're kind of up and down in terms of size. But I guess my quick final question is the broad one for the market is in a year when so far the dividend stocks are leading the way, there's this defensive tilt even with the ESM outperforming. Maybe that's part of this broadening trend.
- [09:39]
Brooke Dane
Yeah.
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Kelly Evans
How does it feel being in the highly concentrated tech space? Do you think this is just a necessary shakeout?
- [09:46]
Brooke Dane
So, you know, first of all, within tech there's so much opportunity to make money in lots of different stocks that like we like, you know, Texas Instruments is not an AI play. Texas Instruments is being driven by the recovery in broad based industrial spending. They're doing a really interesting acquisition today. Like there's lots of reasons where you can find great opportunities around AI, but investors need to remember, like AI is the thing. This is the biggest trend we're going to see for the next decade. It's going to impact massive parts of the economy and you need to be front footed about how you address that and where you see the opportunities.
- [10:16]
Kelly Evans
Kind of fun unless you're in a name down, you know, 20% in the week. Brooke, really appreciate your time. Thanks. With Goldman Sachs. Speaking of which, another name that's been hit hard by these new AI tools is legal zoom. The shares are off 17% since Monday after Anthropic announced its entry into the legal tech space yesterday. But the CEO tells us the new technology is actually a massive accelerant for his company and for Main street. And he says this will effectively expand the market. Joining us now is Legal Zoom CEO Jeff Stibel. Jeff, it's great to have you here. Welcome.
- [10:47]
Jeff Stibel
Thank you, Kelly. Appreciate it.
- [10:48]
Kelly Evans
What was going through your mind yesterday?
- [10:51]
Jeff Stibel
I mean, the, you know, the usual thoughts when, when your stock drops for, you know, for no good reason, especially when our company, frankly, is a beneficiary and quite excited about what's happening with these generalized systems and has been for years pushing them to get more involved and engaged, particularly in our space, because it means we can do more to automate the technology that we know will be automated and displaced and then focus on the human in a loop aspect that we've been building out over the last couple of years that we think will be the driver for us in the long run.
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Kelly Evans
But tell me about Harvey. As I understand it, there are actually a number of legal, do we call them AI tools in the space that are experiencing some adoption. So what's the differentiation between these new models that are going to get so much buzz and the market position that you think you're in?
- [11:46]
Jeff Stibel
Sure. And it really is a very different position between what Harvey does and frankly, what Anthropic just announced and what ChatGPT will likely, we hope, do as well as Perplexity and the others. So what we're, what we're focused on are small businesses principally and helping them succeed long term. We want to drive them into the curve of corporate America, get them incorporated as quickly, as cheaply as cost effectively as possible, and then be their guardian long term. And that means being able to provide cost effective, deep legal advice on a specialized basis, one to one, and leveraging AI to make our teams and, and our technologies more efficient.
- [12:32]
Kelly Evans
Yeah. And so what does that look like? And I guess, look, I'm, I'm no legal expert by any shot, and maybe that's the point here, Jeff. You know, in certain. I wouldn't even call them contracts, but kind of certain business decisions we've had to make. I will often consult AI and use some of its language and almost feel like I'm on more of an even playing field, you know, in some of these instances. So I guess that's quite different from your describing. And look, we also saw Thompson, Reuters was down big yesterday. I mean, they're all. Everyone in the, in the legal space. What's your, what's your pitch to investors when you say you're incorporating these AI tools, how is that going to change the experience and make someone come to you instead of turning to a Gemini or a chatbot or a Harvey or something like that?
- [13:13]
Jeff Stibel
Well, I mean, again, let's, let's use your example, Kelly, because in many respects, you are that legal expert. We are also going to these agentic and generative systems and getting advice and getting input. But it doesn't stop there. We then turn to other experts, human experts, to get advice, to validate that advice and to make sure that what we're doing in the end is the right thing. And that's what we mean by human in the loop. What we're trying to solve is a last mile issue. And anytime you see a platform shift, you saw this with the Internet, you saw this with mobile, you're seeing this now with AI. It is going to be massively disrupted. But the winners ultimately are going to be the ones that are solving problems that long term aren't going to be solved by this platform shift. In fact, if anything, they will be highlighted and emphasized. That's effectively what we're trying to do. And if you look at what we have done over the last couple of years, most of our growth and almost all of our acceleration is coming from this human in the loop notion where we are putting a human in, whether that's a lawyer, whether that is a concierge rep from a new product that we launched or otherwise. And that's, that's the differentiator.
- [14:24]
Kelly Evans
And Jeff, I'm laughing because I went and I said, wait a minute, there's something familiar about you. You are a brain scientist. So you're in the. So I'm asking someone who, who's a brain scientist about the impact of AI. It feels like you would almost uniquely understand these challenges. You also. Is it the actual Kobe Bryant was your investment partner years ago.
- [14:45]
Jeff Stibel
Correct.
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Aaron Levy
On.
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Jeff Stibel
On both parts.
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Kelly Evans
Wow.
- [14:48]
Jeff Stibel
Who. You know, I dearly, dearly miss.
- [14:51]
Kelly Evans
Yes.
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Alex Saunders
That.
- [14:52]
Jeff Stibel
That's always difficult to talk about.
- [14:54]
Kelly Evans
You know, it's still, of course, it's still so raw. Yeah, I'm sure.
- [14:58]
Jeff Stibel
On the brain science side, you know, it is my passion. I've actually written two books on AI very early, too early. But, you know, the one thing that you learn with all of these platform shifts and certainly with AI, is you try to come up with a broad thesis. You make sure that it is broad enough so that it is likely to be right. You draw a line in the sand, you put yourself on the other side of that line and you wait. And what that Means effectively is most people won't understand it. Most people won't believe you. We're not running a religion, it's a business earnings. But in the end you will be right. And you know, the proof points are in our quarterly earnings and we had an incredibly strong year last year and you know, we're looking to continue to keep our heads down and execute and we think we're going to be, you know, we're going to be winners in the long run.
- [15:45]
Kelly Evans
Well, we would love to have you back, Jeff, as this plays out with your thoughts on both sides. I mean I'm thinking to myself as he are you a buyer of these other software? Do you have a point of view on what's happening more broadly or do you just stick to, you know, stick to your knitting?
- [15:57]
Jeff Stibel
I do a point of view generally and you know, what is happening in the markets in my opinion is an overcorrection. And again, you saw this when the Internet came on. I remember I'm an old timer now I guess, but, but I remember being asked in 2001 after that bubble burst, so the opposite, the inflection, whether the Internet was real and whether it was going to die. And you know, of course it made a lot of companies stronger. So what I see is an overcorrection happening. It's not necessarily irrational because everyone is throwing everything out. The question is how do you pick the winners? And I think you're going to find some real exciting, durable businesses long term that are massively undervalued right now.
- [16:39]
Kelly Evans
Well, Jeff, we really appreciate you coming on at a difficult moment. I know of this story to explain your strategy through it. Appreciate it. Thanks for your time.
- [16:48]
Jeff Stibel
It's an exciting one as well.
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Kelly Evans
Jeff Seibel with Legal Zoom. Coming up we'll take a look at shares of Alphabet which had an all time high yesterday. It's on deck to report after the bell and it's been the best performer in the mag 7 for over a year now. We'll tell you what to watch for on Gemini Cloud and CapEx next. Plus the value trade is having quite a moment right now. The value ETF I've hitting an all time high today, up 30% from its lows last April and up nearly a percent today. While the S and P is down as much can the momentum behind value last. We're back with more after this.
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- [18:59]
Kelly Evans
Ready to report results after the bell and the shares are down two and a half percent but it's coming off an all time high and it's more than doubled since its low last April. My next guest says Google is becoming an AI infrastructure utility as the only company who owns the models and the parts that run it. Joining us is Daniel Newman, the CEO of the Futurum Group. Daniel, it's great to have you and I think you know, we need to ask what stops the Alphabet train? Although today finally this whole kind of, what do we call it, Tech Tantrum is certainly taking Alphabet down with it.
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Daniel Newman
Yeah. Kelly, great to see you. Alphabet is a company that's done all the things right. You know, we have talked many times over the years, you and I, and it was underrated for a very long time and I think it's now being fully appreciated for what it's doing. But coming into earnings, you know, we expect to see Google Cloud continue to deliver. It's going to be 35% growth once again and this company continues to build its entire infrastructure largely on its own cash flow. And that's what I really like is people are sort of throwing tantrums. This is a company that really can't be thrown out with the bathwater There was a lot of concern, you know, is the advertising model going to break, is OpenAI going to, to harm its business long term? And I think it's answered all of those questions with Gemini. It's answered those questions by continuing to see it's, it's Google search numbers strong, YouTube numbers strong, and it's delivering the cash that it can make these Capex investments. So while today has been an absolute wreck, it's very hard to watch what's happening. Google looks very good.
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Kelly Evans
You know, it's interesting because the story with Google is either it's going away or it's a monopoly. When chatbot came on the scene, it was, there goes its business model. I mean, a real existential risk. To their credit, you know, DeepMind, they come up with Gemini and now they seem hard to topple. So the Google trade has done much better than the Nvidia open air trade over the past couple of months. But do you think that continues?
- [20:46]
Daniel Newman
Google is really stable. And what I like about it right now is again all these companies that are making large investments because we know Capex is going to be in focus today. Can they continue to fund Capex? The reason people got nervous about Oracle was how is it going to pay, need to raise equity and it needs to raise debt. But it actually was able to do so successfully. And that goes to show how insatiable the demand is. But to some extent all the selling right now is pretty indiscriminate and I see rotation going into people buying Wal Mart and Starbucks. But I, you know, if we're out there, this is a huge disconnect between what's happening in business, in enterprise, they are all building on these companies in Google, Metta, Amazon, these are core technologies. So while some of the software, that software wreck, I keep saying I will eat some software. Google, Amazon, Microsoft, these companies are absolute staples. And the people that don't think in videos evaluate, you know, just over 20 times forward right now. Like I don't know what they're thinking.
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Kelly Evans
But to some extent I would, I would ask then, could you be long both and feel and sleep at night? In other words, can you be long Google saying Gemini is going to win and can you be long in video saying, you know, whoever they're powering open air, whomever else is also going to win all at the same time?
- [21:56]
Daniel Newman
Yeah, absolutely. Look, I was with a number of the leaders yesterday at the Cisco Summit. I was talking to Lip Bhutan and we were talking about memory, for instance. There's not going to be any relief there for three years at least 2028, 2029. And the reason that is is because this build out is going to continue. So Google, Amazon, we heard from Matt Garman yesterday, they're going to continue to build with Nvidia and of course they're trying to build their own infrastructure. Google's doing the same thing, Microsoft's doing the same thing. A lot of people want to do this zero sum thing Kelly, like oh, they're going to build their own chips and they're going to stop using Nvidia. But what's really happening is they're going to build their own chips, they're going to use Nvidia, they're also going to use AMD and they're going to need all this capacity. So the selling off of anything that delivers energy, memory, compute, it's a little bit crazy. I'm not saying it's wrong and that some of these multiples didn't need to be corrected and that there's not right for a sell off. But I'm saying the trend that's like the Internet. Your last guy said like this trend is not going away even if prices do come down further.
- [22:54]
Kelly Evans
So you're sticking with the AI suppliers, let's put it that way, the ones who are building out the ecosystem. Quick final question then. What about software? Do you just say we'll see?
- [23:05]
Daniel Newman
Well my, my answer is I will eat some software. And this is where you need to be able to pick out the companies that are going to win versus the companies that can be replaced. I saw d Bosa building Monday.com using AI Cloud herself. That's a real, real problem for some companies. But you know I look at servicenows, I look at Oracle's, these are core business and I call them the rules and the rails until I can do both build the software but also manage that every day, updating the rules and the rails of running these businesses, it's not going to disrupt it. I see these two things working together. I see anthropic and servicenow partnerships, I see OpenAI Salesforce partnerships. I think ultimately they need access to the data that these, these leaders have. But the rerating is real Kelly. So the, the forward multiples will probably never be what they were at their peak.
- [23:51]
Kelly Evans
All right Daniel, thanks very much, appreciate it. Today we'll see if Google can clear the bar later. Daniel Newman with the Futurum Group coming up box shares are coming off their worst month in more than two years as they get caught in the software sell off. But the CEO insists that AI should be one of the biggest boons for enterprise software in the long run. We will hear more from Aaron Levy next.
- [24:13]
Narrator/Announcer
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.
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- [25:30]
Kelly Evans
Hour, but the real story is in the nasdaq. Interestingly enough though, it's down almost exactly as much as the small caps today, so let's not say this is entirely a tech wreck. Both of them down 1.8%, the S&P down 3/4 of A percent, and the Dow is hanging on to a 28 point gain. AMD though is having its worst day in nine years. They did top fourth quarter estimates, but issued some guidance that analysts viewed as soft given the infrastructure spending when we heard Brooke Dane from Goldman talking about it a little earlier on. CEO Lisa Su joins Squawk on the street today saying, quote, AI is accelerating at a pace that I would not have imagined. Probably feel the same way to the downside about the 16% move lower in AMD shares today. Meantime, shares of Box are down more than 18% since January 1st amid the software sell off. LegalZoom CEO Jeff Stibel told us just 20 minutes ago that agents have made it an exciting time for his industry and the reaction to their rise is an overcorrection, which echoes what Box CEO Aaron Levy told us Right here on the exchange about three weeks ago, he said AI agents and the data they have access to should make a platform more valuable over time. He's back for more. Let's bring him in. Aaron Levy, CEO of Box the selling has only gotten a whole heck of a lot worse since then. What do you make of it?
- [26:39]
Aaron Levy
Maybe, maybe I should stop coming on. If, if it's, if it's not helping.
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Kelly Evans
The message, why do you think people are not persuaded? So let's back out. And Brooke Dane, who we spoke to from Goldman a while ago, separated this out a little bit and he liked players like a MongoDB, like a snowflake, who he says are basically tagging data and that will become more and more valuable with the rise of. I see you nodding along. He was a little bit less vehement about the other names, but, but said he thought there would still be long term revenue streams for the likes of Salesforce and so on. So this move, Aaron though is, it's a historic one. What would you tell investors who are jumping out of these names right now?
- [27:19]
Aaron Levy
Yeah, well, well, I would rather maybe keep it a little bit more philosophical. So I'd say there's sort of two separate categories of the conversation right now. The first is, is what happens when AI coding allows you to develop, you know, software at a, at 100th of the cost that, that you do today. And what happens to the, maybe the pressure of some of these systems and do people go and code their own technology for a lot of these use cases? I think for that it somewhat misunderstands this idea of where companies tend to spend their resources and their time and their energy. And so a company wanting to take on the average company wanting to take on its own project to manage its own ERP system or its own CRM system and take on all of the risk, the liability, the complexity of doing so, even if the cost of developing the software has gone down by quite a bit. I'm less sympathetic to that argument. And I look back, that makes a lot of sense.
- [28:16]
Kelly Evans
I mean, you gave the example of Ford recently and I want you to continue the thought. But I think both of us who sit inside companies know they don't just goof off with software. These are their most vital, most important business processes that they have their, their entire company to understand how they work and they have to be airtight. And I just, I could see maybe for some startups or people who are a little more sophisticated, I just don't understand how they're going to replace Those workflows with something haphazard.
- [28:43]
Aaron Levy
Yeah, correct. And you know, I think from, from my purview and many, many peers purviews, I mean we, we've lived in a world of, of things like open source as an example. There's been open source CRM and ERP systems for decades. And most companies don't run their entire sort of businesses on those because they don't want to take the risk of having to manage those systems themselves. They would rather rely on a vendor that seen that problem set 10,000 times or 100,000 times and they built an ecosystem and they have a set of partners that help you with that. So I do think though that when you have 100 times more software getting built, I think that it's actually a positive boon because what will happen is the software vendors that have access to customers and that are currently managing data or workflows, they're going to increasingly build more functionality for their customers. So I think it's going to cause any existing vendor that you have within your technology stack to both have to earn their current dollars, but ultimately deliver more and more value for you. And I think that's going to be an incredible time to be buying and using IT systems because you're going to get more and more value from your software over time because we're all going to be building way more features. So I think you're going to have more software, you're going to have more functionality, you're going to have more personalization of that. That's the sort of first part of the argument. The second though, I think is much more exciting, which is in a world of 10 or 100 or 1000 times more agents using technology than people do, I think the value of who has access to the right data, the workflows that agents are involved in, the guardrails of protecting information and making sure again that agents only are working off of the right data. I think the value of these systems of record that are involved in critical mission critical workflows, I think the value of those systems will go up because agents are going to need access to all of that information if you want to go and drive any real automation in your organization. There's an interesting stat that Mike Cannon Brooks, the CEO of Atlassian, shared it, I think on the last earnings call, which is the customers that they have that are using AI coding agents tickets are growing faster than those that aren't. And so just think about that intuitively for a second. It sort of makes sense if you are going to go deploy 100 times more coding agents than engineers you have in your organization. How are you going to keep track of what they're working on or what they're doing or the tickets that they either filed or completed? The value of that system of record and the workflow goes up as a result of that. So, you know, I think some of the cognitive dissonance if you're inside of software is we're actually seeing the use cases for agents actually explode and then ultimately make these platforms more useful and more valuable.
- [31:09]
Kelly Evans
Yeah. One side comment Brooke made, an important one is that models like Snowflake and like Mongo don't charge per seat. And so if that was a concern, like you said, maybe there's more seats anyway. Quickly, Aaron, with this broader move that we're seeing in kind of tech and a little bit of this panic, I mean, is there any word of caution you'd add about what is ultimately driving it? Does it, does it feel to you like something that's based on. Yeah. Claude comes out. We just spoke to the legal Zoom CEO. You know, they unleash a plug in for this and a plug in for that. And it just a lot of these industry players, and perhaps you would know better than us, some of these smaller software companies that might not be so vital wherever they live. Maybe they live in the private world, I don't know. But maybe that's where, you know, more of the pain is felt.
- [31:55]
Aaron Levy
You know, I think AI is causing every software company to have to stay on its toes. It's. It is certainly forcing every incumbent to make sure that they are doing more for their customers. I think that's an incredible thing for the market and for IT buyers. But again, from our purview, I'm sure from Salesforce's purview, from workdays or servicenows, in a world of, again, agents running around working across all of your data sets and your business systems, the ability to ensure that those agents only are working on the right information, that they're involved in workflows that are deterministic, that can sort of stay on the same rails every single time. The ability to make sure that agents have access to the right context. In our world, that means enterprise content that actually is going to be even more important for agents to be doing the useful work within our organizations. And so we look at something like Claude Cowork, and we're incredibly excited because Box has an MCP connector that connects directly into Claude Cowork, which means if you want to go and ask Claude Cowork to do, you know, some data analysis for you or generate a PowerPoint presentation. It's able to access all of the data in box to be able to go do that work. And so the ability to then control what does Claude have, access to what people is it able to work with what data is it able to generate? Those become the really important elements of the future of being able to deploy AI agents. So whether you have a data moat or a workflow mote or a network effect within your software, I think these are going to be very important attributes. But I think the conversation is very healthy. I think we should be having conversations about what the future of software looks like. But we're incredibly excited at Box and we've been building box for 20 years now. This is the most exciting moment we've ever had just given the amount of data that enterprises have that they can now tap into with the power of AI agents. So this is what we're hearing from our customers and what we're working on.
- [33:41]
Kelly Evans
You like the Ryan Sirhant with the hair lately too? I know you guys. I'll send you a picture. Aaron, really appreciate you making yourself available. Thank you. And for stating the case so well. Box CEO Aaron Levy. Let's get to Kate Rogers now for the CNBC news update. Hi, Kate. Hi, Kelly. Life in prison. That is the sentence issued today to Ryan Root, who was convicted last year of trying to kill then presidential candidate Trump at his golf club in West Palm Beach, Florida. Prosecutors wrote in a sentencing memorandum that Ruth remains totally unrepentant and that his assumptions assassination attempt warranted severe punishment. Police in Tucson say after four days of searching, they still have no suspects or persons of interest in the disappearance of Nancy Guthrie, the mother of Today show host Savannah Guthrie. Investigators say they believe she was taken against her will from her home over the weekend. And at least three media organizations reported getting alleged ransom notes Tuesday demanding millions in bitcoin. Police say they are are reviewing them and the Washington Post announced sweeping layoffs this morning. According to multiple reports, the sports and book section will be scrapped and the 150 year old papers international and metro sections will see reductions. The paper's publisher says the move will allow the Washington Post to focus even more on national news and politics. Kelly, back over to you. Stuck on the ransom notes in bitcoin. Holy cow. Kate, thank you very much, Kate Rogers. Coming up, the value stocks have been outperforming the market to start the year, but is there enough momentum to carry the trade through this volatility? We'll talk about that next. And as we head to break, check out Eli Lilly. It's up 9% today after blowing past quarterly estimates and giving a strong outlook on those weight loss drug sales that found in Mountjaro. CEO David Ricks chalked it up to their healthy metrics. Take a listen.
- [35:27]
Daniel Newman
Q4 margins report 37% operating margin and.
- [35:31]
Aaron Levy
We'Re growing over 40%.
- [35:33]
Daniel Newman
There's only a couple of companies in the entire S&P 500 with 40% top.
- [35:38]
Brooke Dane
Line and 40% margin with one of them. Nvidia is another one. For instance.
- [35:49]
Kelly Evans
While tech is dominating the headlines, the so called more boring sectors like the material call them cyclicals. The materials, the industrials, the financials are among the worst performers this week. After that strong ISM print on Monday, my next guest says the manufacturing rebound is arriving right on time, will persist throughout the year and is not priced in. He says the outperformance in cyclicals has just begun. Michael Kantowitz is the chief investment strategist at Piper Sandler. So you look at the tape today, Michael, and think what.
- [36:18]
Michael Kantowitz
What'S working generally is the stuff where the data is starting to incrementally improve and what is helping to finance that is the areas of the market where that have been really good. Expectations are high, but investors are needing to or beginning to start diversifying away.
- [36:34]
Kelly Evans
From and I've always heard there's so much money in let's just call it the triple cues of the Mag 7 that even if they move just a little bit, I mean look how small materials are as a sector or energy is as a sector, you sell a little bit of Nvidia, you buy a little bit of that. I'm sure those are huge price swings.
- [36:48]
Brooke Dane
Sure.
- [36:49]
Michael Kantowitz
Absolutely. Yeah. Some of the largest global stock markets around the world are just the Mag 7 stocks. So yes, little bit of money coming out of some of the large cap growth stocks in the US moving down in cap and out around the world can have a pretty magnificent impact.
- [37:05]
Kelly Evans
Some are going to look at this and say that this presents an entry point for something like the triple qs. Best growth in the market. We're just playing that soundbite, you know, Nvidia, 40% margins, 40% growth rate, that's, that's pretty hard to beat. Why do you say they should resist that temptation and instead follow the cyclicals here, including after places like financials have already had a nice run?
- [37:27]
Michael Kantowitz
Yeah, well, I think it's about where the relative earnings expectations are going to improve. And for the last three years Let alone the last decade. We've seen the NASDAQ relative earnings expectations outperform in a straight line relative to small caps, for example, or cyclicals. And that is starting to plateau. And even though their growth in the fundamentals, the numbers are fantastic. When I look around at the market and the economy in 2026 and look at the data that's starting to improve and starting to heal in housing and manufacturing and look at transportation stocks, it's the incremental that really makes money in the markets. And so happiness equals outcome minus expectations. I would argue that expectations are quite low for many of the the deep value cyclicals and are quite high for AI related names.
- [38:21]
Kelly Evans
Could you give any specifics or should people just stick with the sectors and then just talk about for a second how significant that ESM number was on Monday?
- [38:30]
Michael Kantowitz
Well, I think it's in a an eye opener. It's an it'll awaken, I think a lot of investors, we haven't seen a number that strong, especially in new orders, since the downtrend in 2022. And importantly, it's coming right in the wake of a year last year where we started seeing purchase activity improving in the housing data, which historically leads manufacturing and transportation activity by about a year. So my hope framework, we've had the Fed cut rates over a year ago, housing data started to respond to the drop in rates. And now a year and a half later or so, we're starting to see the parts of the economy that quote, unquote, should start to respond in the wake of that. And they are. So I think it's the first of many positive expansionary manufacturing data points. And it's not just the US it's also starting around the world as well.
- [39:24]
Kelly Evans
It's hard to get used to a world where 3M is up 4% and Nvidia is down about the same amount, you know, but that's kind of the world we're living in right now, I guess. Michael, thanks so much. Appreciate it today.
- [39:33]
Michael Kantowitz
Okay, good seeing you, Kelly.
- [39:34]
Kelly Evans
Michael Kanchowitz with Piper Sandler. Still ahead, chatbots are so 2025 because with aging and coding now front and center in the AI race will compare Claude from anthropic to OpenAI's codex and name the tech giant adding both to its flagship coding tool.
- [39:50]
Brooke Dane
Next.
- [39:54]
Kelly Evans
We've seen the market action, but what happens to enterprise software when employees can build some of the leading tools themselves? Deirdre Bossa put that to the test for today's tech check. Deirdre.
- [40:06]
Deirdre Bosa
So, Kelly, let me first say that I don't know if the software sell off is overdone or it's just getting started, but here's what I do know. AI is now letting me, a person who is not a developer and cannot code a line, actually build and do things that I couldn't have even imagined possible a few weeks ago. So this morning we said, let's see how hard it would be to create something like Monday.com low hanging fruit Enterprise software. It's a task dashboard that sits on top of the work that people do. Now, it also happens to be a $5 billion public company. Half an hour and a few prompts later, this is what I had. A functioning dashboard of tasks, owners and status. But then, Kelly, the real magic happened when I connected it to my Gmail and Google Calendar. I had a personalized version of Monday.com that pulled in my own specific to do list. It even flagged a kid's birthday party this weekend that I had totally forgotten about. And it labeled it critical priority, which was extremely helpful because, yes, I need to order a gift today. Now, obviously this is not as polished as Monday.com, nor does it have 10 years of enterprise features, security or data, but it works. And I repeat, I'm not a developer. I cannot code. So imagine what someone who knows what they're doing could actually build. Now, of course, I couldn't get anywhere near vibe coding a CrowdStrike or Apollo Alto. I didn't even try that. These are systems of record and security, and that is a very different class of enterprise software. But the point here that I'm making is that there are software stocks that sit in between and are plausibly vulnerable to AI. That is what we're seeing in the market, but so far it's been indiscriminate. Once that kind of indiscriminate selling fades, investors will have to separate the must haves from the nice to haves. And Kelly, I'm just surprised we can figure that out ourselves. What can I buy code right now?
- [41:53]
Kelly Evans
Are you taking suggestions? Because I think our audience should tell you what they want to see replicated and see if you can do it. I love this.
- [42:02]
Deirdre Bosa
Yeah, I mean, they can do it themselves, but I'm happy to do it. Kelly, send me your recommendations. And if it can't do it very well, that tells you something. I'm not saying that what I created was any good. It's certainly useful for me. Is it going to be useful to a company with 500 plus employees? Absolutely not. But I Just did this in an hour this morning. How about knows enterprise software could do this.
- [42:22]
Brooke Dane
This.
- [42:22]
Kelly Evans
I knew that I news. What do we got? We got try to think through my software.
- [42:28]
Alex Saunders
Yeah.
- [42:29]
Deirdre Bosa
I created sort of a fact that plug in, remember the vato meter? I got to get that going.
- [42:33]
Kelly Evans
That's true.
- [42:33]
Deirdre Bosa
Once we have the MAG7 earnings, got.
- [42:35]
Kelly Evans
To monetize it too.
- [42:36]
Aaron Levy
Yeah.
- [42:36]
Deirdre Bosa
Give me, give me your suggestion.
- [42:37]
Kelly Evans
All right, send them in people. Deirdre, thanks very much. Deirdre Bosa. Coming up, bitcoin is on pace for its worst week in a year, down about 13%. And Citi sees more headwinds on the horizon, especially from Washington. They're going to break down some key levels and take a look at oil spiking. Midday on reports from Axios that US Iran talks have hit a snag and there will no longer be a meeting between the two countries on Friday as scheduled. We'll await more reports on that obviously, but WTI jumping on it already up to nearly 65 a barrel. We're back right after this. Bitcoin is on pace for its worst week in almost a year, down about 13% and back to pre election levels. And big short investor Michael Burry is sounding the alarm warning it could trigger cascading market risks as investors rush to de risk in other assets to cover their losses. Bitcoin is down 40% since its record high in October. My next guest says as crypto approaches more key levels, there could be additional headwinds ahead. Alex Saunders is research strategist of asset allocation and defy at Citi. It's good to see you, Alex. What numbers are you watching?
- [43:42]
Alex Saunders
Yeah, thanks for having me on, Kelly. As you say, we've really hit in key levels at the moment. So the two numbers that we're watching, the first one is 82K. Now when we look at the flow weighted average price of, of inflows into spot ETFs, 82k is around the level of the average investor. So that means potentially investors are showing a loss on their investment. Now that may lead to redemptions or will people add to their holdings? That's going to be a key question for us. And as we had discussed before, ETF flows are really the, the key driver of, of bitcoin prices at least in the last couple of years.
- [44:20]
Kelly Evans
Right. Although ETF flows are kind of, they don't give you a sense of fundamentals or intrinsic value. But all of that aside, do you think the market or gold and silver, other assets are at risk as it.
- [44:29]
Aaron Levy
Continues to struggle No, I still view.
- [44:32]
Alex Saunders
I still view Bitcoin as a little bit of its own beast, if you will. The I often get, and it is true relative to other crypto windows or downtimes in, in, in crypto markets that the Bitcoin is a bit more integrated, I think into the broader financial system than it was back in say 2122, but still it's very volatile. People know that it's volatile. So I don't see the potential for cascade that you had mentioned at the top of this pace.
- [45:08]
Kelly Evans
You mentioned that kind of the, I don't want to call them retail might be institutional now, but that people at that level of, what was it, 81.6 could be underwater. What about the Bitcoin treasury companies? And so how should we think about the pressure that's on those business models and how they're likely to react?
- [45:26]
Alex Saunders
Yeah, so on the treasury side, I really think that, and we've done some analysis around it, it's more a case that they won't be accumulating at these levels. They won't be accumulating while there isn't the interest from retail or the, or the flow driven interest. So I don't see it necessarily as a, as a, as a cascade effect, just that it's removal of a tailwind.
- [45:50]
Kelly Evans
What happens to those companies in the meantime though, as they're sort of treading water here right around their break even levels for strategy at least.
- [45:56]
Alex Saunders
Yeah, I mean I think that that continues. Right. So you probably see less acquisitions. Right. But you don't see liquidations. Hmm.
- [46:04]
Kelly Evans
And at what levels would you expect something more like a quote unquote bottom to be in? Or do you have to just watch ETF flows to understand at which point you know, all the sellers are out of the market and maybe the buying is beginning again?
- [46:17]
Alex Saunders
Yeah. So the second level to watch, as you mentioned, is that pre election level. So around 70k, just under. I think that's very, very important again for a change in investor sentiment where people see all the progress that we've seen in terms of legislation, in terms of regulation, in terms of the Genius act being passed for Ex Paul, do they view that level as an attractive low point or not? And the same thing on the administration. The administration had been very active in terms of executive orders, again with the legislation. Is that a level where they feel they would like to do more?
- [46:53]
Kelly Evans
All right, Alex, thanks. We'll keep an eye on it as we get closer. Maybe we won't. Maybe we will. Alex Saunders of Citi. Appreciate it. Today. And that's it for us. Thanks for watching the the exchange. I'll join Brian Sullivan for power lunch right after this break.
- [47:06]
Narrator/Announcer
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