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The Exchange
The Exchange 6/3/26
00:57:05
Listen to the day's top stories, the must reads & a whole lot more for today's modern investor.
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- [00:01]
Venture Global Representative
Never bet against American Grit or American energy through innovation. Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost in a fraction of the time. So while others are busy talking, we're busy building. That's Venture Global. That's unstoppable energy.
- [00:31]
Brian Sullivan
Building a portfolio with Fidelity Basket Portfolios is kind of like making a sandwich. It's as simple as picking your stocks
- [00:38]
Michael O'Hanlon
and ETFs, sort of like your meats
- [00:40]
Brian Sullivan
and other topics and managing it as one big juicy investment. Mmm. Now that's pretty good. Learn more@fidelity.com baskets Investing involves risks, including risk of loss. Fidelity Brokerage Services, LLC Member, NYSE SIPC Member. You're listening to THE Exchange. Here's today's show. Thank you very much, Scott. A plea to use less AI space. X sets its terms and high earners hit the dollar stores. That's all coming up this hour. Welcome to THE exchange. I'm Kelly Evans. Take a look at this market rally. A pause today as oil prices and Yields move higher. Dow's down 433 right now. Russell's down 1 1/2 percent. S&P is down about half a percent at the moment. Comes after the US And Iran launch new STR overnight. The S and P and Nasdaq are actually tracking for their first negative day in 10. In tech, the semis are holding up better than software. Intel's a standout, snapping a five day losing streak. The memory names also rising with Western Digital up 5%. Elsewhere, the old asset private credit trade under some pressure, Blackstone, KKR, Blue Owl down around 4% following some new redemption headlines last night. But let's begin today with the latest out of the Middle east as President Trump says Iran agreed to not have nuclear weapons but added they can change their mind. Perfect timing for our Sarah Eisen to sit down with Israeli Prime Minister Benjamin Netanyahu, as she did just a short while ago. And Sarah joins us now live from Jerusalem with the key moment. Sarah.
- [02:16]
Sarah Eisen
Hi, Kelly. Good to see you here tonight. And on that note, Prime Minister Benjamin Netanyahu told us that he's still cautious because Iran, as he said, tends to lie and cheat, which is why the prime minister said that that Iran has to agree and they have to figure out a way to remove the nuclear material and dismantle the nuclear infrastructure. That's what he made clear was important from Israel's perspective when it comes to making any deal with Iran. Now, I asked the Prime Minister, of course, about the strikes overnight, drone and missile attacks on U.S. troops in Kuwait and Bahrain, and asked him how he interprets whether there's a ceasefire right now or not. Here's what he said.
- [02:59]
Benjamin Netanyahu
I think there's a tactical game that is being played and Iran surely knows what the president has said, that if necessary, there'll be a full scale return to military action. You know, it's the president's decision. Israel is ready and the US Forces are ready. I think Iran should take that into account. I think they are taking into account, but they're playing with fire. That's clear.
- [03:24]
Sarah Eisen
The prime minister also did talk about that very testy exchange between him and President Trump. President Trump, of course, confirming today to another news outlet that he did use effing crazy to the prime minister. Here's the prime minister's account.
- [03:42]
Benjamin Netanyahu
This is a crisis. You should be in some other conversations. But we've always found a way. We have so many agreements. We agree on the main things. We want to get Iran, the nuclear program in Iran finished. We want to make sure that Iran doesn't pose a threat to Israel, to the Middle east, to America, that it doesn't develop nuclear weapons and the means to deliver them not only to Israel and to every capital in Europe, but to every city in the United States. That's our common goal. That's what we set out to do and to expand the circle of peace.
- [04:12]
Sarah Eisen
And he also said that there is no shift in the relationship between him and President Trump. He said they speak more multiple times per week, even per day, and still characterizes President Trump as the best friend that Israel has had in a US President. Kelly. He also talked about Lebanon, asked a number of questions about what's going on there. And what he says is they still need to demilitarize Lebanon because Hezbollah continues to be a threat. And when I asked him about some of the criticisms, for instance, coming from European leaders about what Israel's been doing in Lebanon, he he really criticized them for pandering to their political bases instead of what he says is standing up against terrorism, which Israel is doing. And as he continues to say, fighting U.S. s war, fighting Europe's war, fighting the war for the West. That's the main message from the prime minister.
- [05:02]
Brian Sullivan
Sarah, that incursion that Israel made into Lebanon, as I understand it, went further than it had in at least many decades, kind of maybe going back to one of the conflicts that had established those borders. What is his plan to continue to press further into Lebanon, to pull back? And how does that relate to whether the US And Iran can meanwhile come to some kind of a deal, including a deal where Iran agrees to give up its nukes.
- [05:26]
Sarah Eisen
Right. So he did say that after the phone call with President Trump. This is Netanyahu said that there has been an agreement that they would not fire if Hezbollah would not fire on them, that but they would have to respond if they do. And then I asked if Hezbollah terrorist organization has kept good on that and has kept its word on that. He said they're looking into something that they may have they may have sent some missiles through the north. And of course they will respond. Israel will, if that is the case. But, you know, he has been clear that fighting Iran and fighting its terrorist proxies are part of the same battle here. And the battle he characterizes as is one for Israel to defend itself. And, you know, they have these peace talks going on with Lebanon to try to put pressure and demilitarize Lebanon. Actual potential peace with the Lebanese government would be something. Those talks are ongoing this week. But he did not commit to saying we're going to back off Lebanon because of course, he's responding to the terror and the missiles that come over the border through the north.
- [06:33]
Brian Sullivan
Understood, Sarah, so glad you were able to secure that and bring us those highlights. Thank you so much. Our Sarah Eisen in Jerusalem tonight. For more reaction, we turn now to Michael o', Hanlon, director of research for the Foreign Policy Program at Brookings. Michael, assuming you just heard that, and how does that to you shift the calculus, if at all, when it comes to this conflict ending?
- [06:56]
Michael O'Hanlon
Well, I liked what I heard from the interview with Prime Minister Netanyahu because it was realistic compared to some of the things that he's aimed for. And I understand why he has wanted regime change in Iran, but I don't think that's a realistic goal. We didn't hear a lot of that talk today. We talked about instead the nuclear program, where I certainly think his ambitions and goals are realistic, and disarming Hezbollah, making sure Israel is not under attack. So to the extent that those goals can be paramount, I think there's the basis for moving forward and even eventually having a deal with Iran. I do think we'll have to allow Iran some lim amount of uranium enrichment capability, but nothing close to what would be needed for a nuclear weapon and under international monitoring. So on those points, I think Netanyahu and President Trump will have to be flexible.
- [07:45]
Brian Sullivan
Are we getting closer to an end of this conflict or no?
- [07:48]
Michael O'Hanlon
It's in the heads of Trump and Netanyahu primarily. So I really can't say. I should say I'm sorry. Trump and the Iranian regime. I think Netanyahu will largely have to accept what President Trump decides to prioritize, even though he'll certainly use his lobbying skills to try to persuade Mr. Trump, wherever that may be the case. But I think Trump, you know, has had a hard line on Iranian enrichment of uranium, and he's wanted none whatsoever or none for 20 years. To the extent that President Trump's prepared to be a little more flexible, I think he probably could get a deal. Then there's the Strait of Hormuz issue, where I think that Iran's going to have to back off from its demand that it charged holes. And maybe the way you get out of that is to let Iran access to its frozen assets as you move down a nuclear deal. And then finally on Hezbollah, that may be the trickiest one of all, because Israel, of course, wants to make sure Hezbollah can't be a threat in the future. And it's not clear how you do that short of these ongoing limited attacks that Israel is conducting. But maybe we can agree to some kind of a long term cease fire on that front as well. In other words, there's those three big issues, each one of them, you could imagine a compromise, but none of the terms that have been proposed so far are going to work. The two sides are going to have to come closer together in a way.
- [09:07]
Brian Sullivan
And this was what Halima Croft had said yesterday, that kind of the demands on both sides are expanding because, you know, on the Iran side, there now includes demands about what is happening with Lebanon. And on the US Side, it has to deal with Israel and kind of addressing that issue as well, while at the same time trying to bring this to a close, dealing with Hormuz. So China, do you think that's a fair characteristic, that it's actually gotten more complicated? The list has grown longer?
- [09:31]
Michael O'Hanlon
I think that's true since the war began, especially because of the Hezbollah and Hormuz issues. Yes. Although I think Mr. Trump is in a position where he can say not everyone's going to believe him or agree, but he can say, I've achieved the fundamental goals of the United States. We've set back Israel's nuclear and missile programs, not permanently, not forever, but if we now have adequate monitoring, a very low level enrichment that will deal with the number one threat, I think Mr. Trump could sell that and say that the war therefore achieved at least the most important goals that were set out for it at the start. And I think that still is a viable path forward for him, but he's going to have to show some flexibility, I think, on the enrichment question.
- [10:11]
Brian Sullivan
And Michael, as all of this is simmering, I can't help but notice, you know, an uptick in the Russian attacks on Ukraine. Obviously, the Iran war has been great for Russia. They're getting more oil revenue. They had a wave of those waiver on those sanctions and that's able to keep funding a lot of what they're doing. So the attention being so much on this Iran conflict, at the same time, the Russian issue sits there with, you know, we're in, what is it, year five of this war now.
- [10:37]
Michael O'Hanlon
Yes. And that's why Iran wonders that maybe it has the upper hand because it sees Mr. Trump looming towards an election, a midterm election where his party could well lose partly because of this issue and associated inflation. Gas prices are going up. Russia is benefiting, as you point out. And does Mr. Trump really have the stomach to play this thing out into the summer and potentially even beyond that? By contrast, of course, Iran's running out of places to put its oil, may have to shut down its oil wells. Its economy is a shambles and its leaders are still under threat from possible resumed military strikes. So both sides are sort of jostling for position trying to see who has the upper hand. That's why it could take weeks or even months for this thing to resolve as the two sides each see a comparative advantage.
- [11:23]
Brian Sullivan
All right, Michael, really appreciate it. Thanks for making the time.
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Michael O'Hanlon
Thanks, Kelly.
- [11:27]
Brian Sullivan
Michael o' Hanlon with Brookings coming up and under the radar. Way to play the trade. Our market guest will reveal his thoughts on that next. You can see markets are still under some pressure which speaking of which, Uber blowing through its full year AI coding budget in only four months. What happens to the AI trade if companies can't afford to deploy more of it? We'll ask Slow Ventures. Sam Lessin ahead.
- [11:53]
Sam Lessin
This is the Exchange on cnbc.
- [11:59]
Fidelity Representative
Your data lives everywhere on prem in the cloud across apps. Bring it all together with Everpure, the platform that acts like a living system, delivering the latest in data performance, security and innovation without ever slowing you down. Sophisticated enough to anticipate your ever changing data needs, yet simple enough to feel like second nature. Tame your data chaos with Everpure and make storage and data management the simplest part of your business. Visit everpuredata.com to learn more.
- [12:27]
Venture Global Representative
At Venture Global, we think about what can be done, not what's usually done through innovation. Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost in a fraction of the time. So while others are busy talking, we're busy building. That's venture global. That's unstoppable energy.
- [12:57]
Brian Sullivan
Hey, Fidelity.
- [12:58]
Sam Lessin
Can I get a second opinion on stocks in the Fidelity app?
- [13:02]
Fidelity Representative
With Fidelity, it's easy to get an outside opinion from independent experts in a single score. And then when you're ready, trade US stocks and ETFs with no commissions.
- [13:12]
Sam Lessin
That's right.
- [13:13]
Fidelity Representative
I am always right.
- [13:15]
Fidelity Disclaimer Voice
Investing involves risk, including risk of loss. $0 commission does not apply to customers. Designated by Fidelity as a professional equity trader. A limited number of ETFs are subject to a service fee of $100. See details@fidelity.com commissions Fidelity Brokerage Services LLC Member NYSE SF.
- [13:39]
Brian Sullivan
Welcome back. Stocks are sliding today as the ten year treasury yield creeps back up to four and a half percent or so on the back of higher oil prices. But my next guest says that won't matter as much as the two key drivers of this market. Ryan Kelly is chief Investment officer and Portfolio manager at Hennessy Funds. Good to have you here. Appreciate it. And I mean, we're reminded today that oil prices do still matter. The Iran conflict does still matter. But obviously most of what's happened in the market this year has been all about what you say. What two drivers are they?
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Ryan Kelly
AI and earnings. Yeah, you know, that's really what's been driving the market all throughout the year. The earnings season was exceptional. We saw companies with some of the highest net net margins of all time. 15% for S&P 500 companies.
- [14:21]
Brian Sullivan
Really?
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Ryan Kelly
Yeah. And I, of course this is probably one of the best things that's happened in the market in years. I mean, this is a huge boom to the market. It's a boon to spending. Think about these large cap tech companies. They had tons of cash sitting on their balance sheets with really nothing to do with it. You know, invested wherever. Whereas now they're investing in AI, they're investing in each other, they're investing in future compute power, investing in data centers. I mean, it's an incredible amount of money flowing and really what this market is about is that we're seeing money flow, flow flowing into the market and also amongst companies.
- [14:59]
Brian Sullivan
So going, going back to some of their, their capital spending, I mean, 30, 35% of revenues, in Meta's case, maybe double that. These are huge numbers. This is a huge bet that everybody's making on the future of this technology and to you it's an opportunity. But when you're looking at allocation, do you just say stick with all these positions or do you worry a little bit, you know, about what that all means for them to be spending this amount debt financed and everything?
- [15:25]
Ryan Kelly
Well, first of all, it's really good to see that Alphabet's actually doing an equity raise. You know, it's not just going to be debt.
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Brian Sullivan
Right. But upsized it this morning. The shares barely moved on it yesterday as well. They're barely lower.
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Ryan Kelly
It's, it's just amazing how many investors are interested in this too. That's a case in point. I mean, I think your point is a good one in that no, we're not just blindly saying just continue to own the market. But the market has been so resilient for so many years. You know, 17 years since the financial crisis of 17% per year.
- [15:55]
Brian Sullivan
Wow.
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Ryan Kelly
There's really no other better place in the world to put your money.
- [15:57]
Brian Sullivan
Has that been the average return?
- [15:58]
Ryan Kelly
That's the average return since, which is 17 years ago. That being said, you know, this is happening fast. I think there is a lot of reports already and a lot of worry out there that it's going to take longer than we think. You know, data centers being built out. You can't just do it. You have to have a lot of pieces in place. There's resistance to that. So we're also saying, you know, there's a time to get a little bit more defensive here as well. You might have you don't want to not be invested.
- [16:23]
Brian Sullivan
I like how you say the only mistake for investors has to be has been to not to not be invested,
- [16:28]
Ryan Kelly
which is where do you want to be invested? And we've seen a huge run up in these names. Now we can start looking at value, you know, now we can start looking at industrials. Now we can start looking at Mid Cap. Mid Cap has done very well this year. You have a couple of utilities.
- [16:41]
Brian Sullivan
Let me just rattle them often in a way you say utilities are a way to play this whole. I think but you like at most one gas. Dominion Southern Company, Williams, Kinder, Morgan, Oneok, Cheniere.
- [16:51]
Ryan Kelly
Absolutely. Yeah. Those are all names that we own in our Hennessy Gas utility fund.
- [16:55]
Brian Sullivan
That would make sense then.
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Brandon Gomez
Yeah.
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Ryan Kelly
So I'm not just making those up, we own them. But there are companies that in various ways are going to be part of this play. It's going to take longer, you know, it's a longer tail to see that money trickle down. But already they're in talks with many of the hyperscalers about building out AI Right now, I think the Duke CEO is making some comments about how they're talking, you know, regularly with these companies. He sees a tenfold increase in power demand.
- [17:26]
Brian Sullivan
Oh my gosh.
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Ryan Kelly
You know, and that's huge.
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Brian Sullivan
We could never. How are we ever going to meet a 10, a tenfold 10x increase in power demand? It's, we'd have a hard time meeting a 10% increase in power demand.
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Ryan Kelly
And that's one of the great things about, you know, to get a little bit more granular about the natural gas side of things is that even with all the conflict around the world, US has its own very abundant supply of natural gas. Natural gas is excellent for many reasons and a lot of these utilities are using natural gas either to deliver to the end customer or to create the energy that we need going forward. But yeah, there's a, there's a risk there. I mean, and it's probably not going to happen as fast as people think, but the trajectory is, is for many decades of growth.
- [18:07]
Brian Sullivan
I'm curious, you know, as you mentioned, you're kind of based in that greater Charlotte area, Duke, and that those are somewhat local but with your customers, clients, especially the younger ones, are they invested? I mean, do they. We've heard so many headlines in recent years about the meme stocks and about, I mean there's a lot of people in zero day options. The prediction markets have taken a lot of oxygen sports betting. And I'm just curious, like, is that kind of the demographic, Is it for you a demographic that's still fully invested in the stock market or no?
- [18:37]
Ryan Kelly
That's a great question. I have a daughter who's just coming out of college and I'm working with her to try to get her to understand all that, you know, and it's wonderful. But it's also this idea that if they see, you know, in the prediction markets that, oh my goodness, you can take, you can take 4 cents and turn into 100 cents. Like that looks huge, right? But at the end of the day it's, it's, it's not the way to invest. That's speculation. And so, you know, we do need more people to invest in the market. We do think it's a great place to be and it's a place you want to be for the long term.
- [19:06]
Brian Sullivan
Just feels like there's a lot of competition. There is kind of the idea that you could make a quick buck instead of, I mean, 17% for 17 years straight. And it's like I mean although the line and I'll just leave it on this, it has almost become a maxim to buy the dips and maybe the retail investor panicked a little bit with Iran. Maybe that was a little bit different. But is there a sense that this market has punished you any time you've left to the extent that you ever worry that the hurting behavior is a little bit too strong of people just saying, I just got to stay long.
- [19:35]
Ryan Kelly
Yeah, I think it is sort of a self fulfilling prophecy definitely for sure. But I think, you know, that's why, you know, a fund like ours, honestly when you have those dips, it significantly outperformed the dot com bubble. This is from this fund has been around since 1989.
- [19:50]
Brian Sullivan
Wow.
- [19:51]
Ryan Kelly
It's significantly outperformed during the financial crisis during the lag 72022 I think. You know, mag 7 was down 50% that year and this fund was up 5%. So there is a lot of compelling reasons to sometimes stick with the utilities, stick with the boring, stick with the value because it'll help you in times when, when you have those big dips.
- [20:13]
Brian Sullivan
It's a good reminder that these stocks can go down sometimes like today. Brian, thanks very much.
- [20:18]
Ryan Kelly
Thanks for having me.
- [20:19]
Brian Sullivan
Ryan Kelly with the Hennessy funds coming up. Unconventional. Like most things Elon Musk does, the Space X IPO is shaping up with a twist we don't usually see. We'll have those details next and as we head to break, check out some of the names that are actually falling to new multi year lows on the list. Charter 2014 lows. Comcast. It's a 2311 year lows. Chipotle in fact multi year lows. Same with Lowe's company and Tractor Supply. Tractor Supply lowest level in two and a half years. We'll have more on these and the biggest movers when we come right back.
- [21:05]
Fidelity Representative
Your data lives everywhere on prem in the cloud across apps. Bring it all together with Everpure, the platform that acts like a living system, delivering the latest in data performance, security and innovation without ever slowing you down. Sophisticated enough to anticipate your ever changing data needs, yet simple enough to feel like second nature. Tame your data chaos with Everpure and make storage and data management the simplest part of your business. Visit everpuredata.com to learn more.
- [21:33]
Venture Global Representative
At Venture Global we think about what can be done, not what's usually done through innovation. And Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost in a fraction of the time. So while others are busy talking, we're busy building. That's venture global. That's unstoppable energy. Introducing Fidelity Trader plus, the next generation of advanced trading from Fidelity. Customize your tools and charts and access them seamlessly across desktop, web and mobile. For faster trades anywhere you go, try the all new Fidelity Trader Plus. Learn more about our most powerful trading platform yet@fidelity.com TraderPlus investing involves risk, including risk of loss. Fidelity Brokerage Services LLC Member NYSE SIPC.
- [22:48]
Brian Sullivan
Welcome back. With the markets under some pressure right now, but to be fair, we're snapping, what is it, multi day win streaks for the S and P and the Nasdaq. Although the Nasdaq is down 1% now. Bitcoin's also lower again, hovering just around 65K. It's down 25% since January and on pace for its worst first half in four years. Shake Shack also getting a couple of downgrades on Wall street, citing worst margin visibility. Still, about 60% of analysts have positive ratings on the stock. Average price target is 87. That would be 60% upside from here, but these shares are down more than 40% in a month and at their lowest level in two and a half years. And Netflix is also on track for an eight day losing streak, down about 8% in that time. That ties its longest losing stretch since November of 2022 when it also fell eight days in a row. Elsewhere, Space X is set to announce its IPO terms today and they have a twist. As per usual, Leslie Picker has the details. I only say as per usual because it's an Elon Musk offering here.
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Leslie Picker
Leslie, you are spot on, Kelly. Elon Musk is known for doing things unconventionally this IPO process, no exception. Along with his team, he's decided to market just one price to investors instead of a range. That price, I'm told hold, is $135 per share. The plan is to offer 555.6 million of them. Those details are expected to come in a public filing about four hour three or so hours from now. The total offering size amounts to $75 billion, which would be triple that of Alibaba, the current record holder for US listings. I'm told the $135 price tag implies a fully diluted valuation of 1.75 trillion. That valuation would include consideration from the EchoStar agreement to purchase Spectrum licenses, as well as a potential acquisition of Cursor. I am told it does not include much of the 1 billion performance based shares granted to musk that vest when the company establishes a permanent human colony on Mars with at least 1 million inhabitants. I'm told that the fixed price was chosen in lieu of a range due to the depth of the testing the waters process. Success with institutional investors in recent weeks. But the big wild card CAL will be retail, which is expected to comprise about 30% of the offering. That feedback will be collected on the roadshow which kicks off probably tomorrow morning. Although it can be harder to assess because that cohort cohort is so fragmented.
- [25:10]
Brian Sullivan
Cal. So why again are they picking a price now? Normally, you know, you go, you build up to the offering and if it's going well, they raise the price and it's usually a range. If it's not going well, they might lower it. In this case, they're just deciding now this is the price.
- [25:24]
Sarah Eisen
Why?
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Leslie Picker
Yeah, I mean they basically feel like they've gotten all the information that they need to. This is a company that's been private for a really long period of time. They've had these extensive testing the water processes where they've had these conversations with institutional investors and they've gotten a sense of kind of what their willingness to pay is and what the demand looks like, at least from the institution, institutional investor side of things. And then you have retail, which is having an outsized role here in terms of allocation. It'll be about 30%, which is much larger than we typically see in especially a buzzy offering like this. However, retail is known to be much more price insensitive and therefore I guess the feeling is that if they price it at $135 per share, retail will come.
- [26:06]
Brian Sullivan
All right, Leslie, thank you. Exciting week as we gear up for that. Leslie Picker to Angelica Peebles now for the CNBC news update. Angelica.
- [26:13]
Angelica Peebles
Hey, Kelly. A man who took several people hostage at a California bank building is dead and the hostages have been released after a 15 hour standoff. The suspect barricaded himself inside the building in Bakersfield around 1pm local time on Tuesday. Bakersfield police say the suspect was killed in an FBI involved shooting early this morning and the hostages were not harmed. OpenAI CEO Sam Altman will be attending the G7 conference in France later this month. CNBC learned this morning French President Emmanuel Macron invited Altman to participate in a leaders summit where is expected to be featured prominently on the agenda. OpenAI's Chief Global affairs officer told CNBC that Altman's focus at the G7 summit is youth safety and top ranked tennis player Irina Sabalenka has lost at the French Open after holding a commanding lead. The four time major winner led four to one in the second set and was two points from victory before losing against Diana Schneider who was in her first ever Grand Slam quarterfinal. So all kinds of upsets there.
- [27:16]
Brian Sullivan
Kelly wow, that close and then not able to close the deal. That's a tough one. Angelica.
- [27:22]
Angelica Peebles
Thanks.
- [27:22]
Brian Sullivan
Coming up, Uber making a U turn on AI coding tools after blowing through its full year budget sooner than expected. We'll tell you how they're adjusting and ask VC Sam Lesson what it signals for the AI trade. And don't miss Sarah Eisen's full exclusive interview with Israeli Prime Minister Benjamin Netanyahu that will be aired tonight at 7:00pm Eastern only right here on CNBC. Welcome back. News today that Uber is cutting 23% of its people division a day after the company put caps on token usage in order to rein in costs. Mackenzie Seagallos has more details in today's Tech check.
- [28:08]
Mackenzie Seagallos
Mackenzie hey Kel, so Uber blew through its full year AI coding budget in just four months and now the company is raising that budget again, but with more conditions on who gets the biggest allowances. Now I'm told that Uber's fifteen hundred dollar monthly limit is only the base tier per tool per employee, with separate caps for each approved coding product and then higher tiers can reach into the six figures. Uber is tracking token quotas through employee dashboards, and CEO Dara Khazrushai said that about 10% of committed code is now built by AI agents, with use cases rising in legal and marketing departments. But the payoff is harder to pin down. CEO Andrew McDonald recently said that AI coding metrics can look amazing, but when he asks senior engineering leaders whether those productivity gains are actually moving more projects into production, he says that link is not there yet. Without a clearer connection to new features and functionality for users, McDonald adding that the AI spend becomes harder to justify. And it's not just Uber. Priceline tells us it's capping developers at $2,000 in tokens a month, while Walmart, Amazon and Microsoft are also moving from broad AI access toward tighter controls on usage tokens and licenses. Uber is also cutting nearly a quarter quarter of its division that houses HR less than 1% of the company though, and says those cuts are not AI related. But the layoffs do come as Uber has already made clear that agentic I could help moderate hiring growth.
- [29:37]
Brian Sullivan
So going back to this trend where we've seen I think it was Wal Mart, now it's Uber. You mentioned a few others who are limiting token usage. Mackenzie our companies, because I've heard about a lot of companies incentivizing their developers to use more tokens. It's a sign of their productivity. It's how they generate code and do work, even though it's not perfect. So these companies are now saying the bill for that is too high and they're pulling back.
- [30:04]
Mackenzie Seagallos
Well, precisely. And I feel like Uber is almost accidentally become this corporate poster child for the debate of token maxing. And to your point about it not being something that you want to incentivize employees to do, you saw Metta, one employee had an formal dashboard that was up. They took that down. And then our Amazon reporter Annie Palmer got access to audio from an Amazon executive talking about the fact that they were removing one of these dashboards. Again, that pointed to connecting employees to token use. But that said there are still other informal dashboards being used to connect KPIs to token use. So people are paying attention to that. But I think kind of threading the needle here, it's no longer the cool thing to do to want to be higher up on that leaderboard. If anything, it's quite, quite the opposite. And so Uber is pretty much become this test case looking at whether the spend is worth it. And they are very directly lining up these, these monthly quotas of the 1500 to what they are getting. And at this point the CEO made it clear that more code commits, more tokens, more usage doesn't automatically mean better products for consumers.
- [31:06]
Brian Sullivan
Feels like a bigger deal for the trade if that's the case. Or maybe the anthropic IPO and a lot of this. That's why I'm glad to hear those details. Mac.
- [31:14]
Mackenzie Seagallos
Yeah, and it goes back to our conversation two weeks ago, Google IO and then yesterday our Kate Rooney was at Microsoft's big developer conference. And really so much of the selling point there is our models are don't cost as much per token. They are great for enterprise customers. That's what Sundar Pichai, the Alphabet CEO, is really driving home. That if, if you have enterprise workloads, if you move 80% of them to Google Cloud using Gemini 3.5 Flash, that lighter model that doesn't cost cost as much as Claude, then you're going to save a billion a year.
- [31:42]
Angelica Peebles
Hmm.
- [31:44]
Brian Sullivan
Now that you say that, I'm like, yeah, I'm connecting the dots between this is the new pitch. This is how you make inroads against the leaders on an issue that obviously hits home For a lot of, for a lot of companies. Mackenzie, thanks for now. We appreciate it. Mackenzie Seagalos there. Our next guest says token maxing never made sense in the first place and rationality is coming also with cheaper Chinese models. For more, let's bring in Sam Lesson. He's Slow Ventures co founder. As always, Sam, when there's a topic that's making my head ache a little bit, I'm hoping that you can break it down. How did we so quickly go from token maxing, which I never understood. I mean, I understand a little bit, but again, it seems obvious if you're asking people to do a lot of something, it's going to cost a lot of money to the companies now quickly saying, well, yeah, it did. And so what's the next step in this process?
- [32:29]
Sam Lessin
Look, I think we're just in a speedrun era of a lot of things. You know, we've seen these cycles before. We're just doing these very quickly. But yes, any world in which your goal is to spend as much money as possible is usually the world is not going to last very long. And look, it kind of made sense for a few months. These new tools are released. There's a lot of excitement about what they could do and understanding. Pushing the boundaries. You say, look, we want everyone to push the boundaries. Don't worry about cost, let's just see what's up. And I think what we're seeing now is people saying, okay, we kind of understand what you can and can't do. We're obviously not going to spend on the most expensive tokens infinitely, with no cost controls forever and no roi. And you're just seeing people speedrun that reality. You know, I think the thing you talk about, the rationality, you know, look, I use cloud all day long. I think it's an incredible tool. I also am completely price insensitive on my spending. You know, you look at what's coming in the future, there's going to be a lot of, you know, these things are all rationalizing and commoditizing quickly.
- [33:21]
Brian Sullivan
I almost want to ask you. And because it's you, I sort of feel like I can. But you don't have to answer like, how much are you spending on this stuff?
- [33:26]
Sam Lessin
Because the funny thing is, to be honest, I don't even track it, but I spend thousands of dollars a month personally on AI tools effectively just for myself.
- [33:35]
Brian Sullivan
Right.
- [33:35]
Sam Lessin
And I'm happy to do it and I get a lot out of it. But it's not a, it's not, there's no Cost rationality to it.
- [33:40]
Brian Sullivan
So, Sam, here's. I'm trying to understand as well, do these. I don't know whether to call it vibe coding. I understand what they do. I don't know what the correct verb is. Does it work? Right? Does. Does having your developers use these tools actually result? Because the Oracle CEO the other day talked about it as if. Yes, he sort of told us. It was an interview with David Faber. He said. Said we literally work differently now than we did a year ago, and he thinks that's going to continue.
- [34:08]
Sam Lessin
I mean, 100%, you would be crazy to be coding in 2026 or building anything and not using AI in some form. That would be insane. It's like, you know, making artisanal cheese. Like, of course you're going to use it. The question is just one, in what ways? You know, and what are the limits on it? Because there are limits and there are different limits in different scenarios how you use it. And then two, what are you actually using? In the end of the day, all any of this stuff is. Is multiplying big numbers together, right? This is literally like we're just multiplying enormous numbers to, like, do a bunch of this stuff. And what's happening is, you know, anthropic, I'd say, is the kind of the ultra premium version of it. And they have that premium because they are, I think, probably still the best. You know, OpenAI is also great. There's a few kind of premium versions of this where cost is no object, they are marginally better, but as everyone else catches up and the cost of per token that they're charging is a tenth or a hundredth of what everyone else is, the question is, what happens to cost and how do you rationalize that? And then how ultimately do you talk about ROI on any of this stuff, let alone the ROI of the premium stuff?
- [35:07]
Brian Sullivan
If I am a shareholder in Video, in, I don't know, Broadcom, Marvell, Vertive, I mean, Lumentum, you name it. Do I need to worry about. I mean, is this the most important kind of narrative for those trades, or is this in some ways a side story?
- [35:24]
Sam Lessin
Well, here's what I basically say to be a little glib about it, is it's pretty clear that matrix multiplication, the core workload of inference and all these other things, we're going to do more of that in the future, right? So if you want to go all the way down the stack to copper and power and things like that, the further down you go, the more short. If you believe we're doing more multiplying in the future. You're fine. The higher up you go towards things like anthropic OpenAI and then even consumer services on beyond that, you have to have a far more specific opinion about where the price defensibility is and why people are going to pay more for their numbers to be multiplied. Right. So, you know, we think about Nvidia, they've innovated a bunch, they're going to continue to, they're going to play a role. You know, the question is how much of a premium is that? It's actually unclear, I argue, is less of a premium than some other parts of the kind of whole ecosystem that you're paying. But it's just that question, I mean, you can go all the way down and say we'll probably use more power. It's true. We might not, you know, it might be that you're doing it on device with your iPhone and that's actually where the multiplication happens. So you actually need less data centers. But, you know, that's kind of how I would think about it. I think it's a pretty safe bet we'll be multiplying more big numbers.
- [36:29]
Brian Sullivan
Yeah, Using. Using more of it in general. And just because you mentioned kind of the top of the funnel is at the bottom of the funnel, the top of the stack there with anthropic and open AI as these IPOs are coming. I mean, this is a different phenomenon that Silicon Valley is used to. It's been going this way for years, obviously. Bigger and bigger and bigger and saying private for longer. I'm just curious what kind of color you'd add being out there in terms of interest in this. There's going to be 30% retail for the Space X IPO. They're setting the price now. Then you have anthropic, then you have OpenAI coming. And do all of these to you seem, you know, like anything that you'd caution people about or just this is where the markets are. They've stayed public, grow so fast, and here they come.
- [37:10]
Sam Lessin
The question, the question is with everything, there's a fundamental reality and there's narrative on top. Right. I would argue that the SpaceX anthropic OpenAI is the strongest narrative of the important world change we've seen in an extremely long time. Right. And so there's an argument that if you believe that this is the future, how can you not be aboard? And I think that is extremely strong. Elon is the greatest storyteller of our generation. And I think that's actually, that's not meant critically, like there's a real value to that, but that's just the gap is between fundamentals and what you believe about the future. And the thing is, when things are growing so, so quickly, quickly you can tell a lot of stories and small, small changes in the angle of that curve result in massively different realities when you add a few years. And I think that's what everyone's trying to figure out. I mean, it's really exciting, it's really different. I think everyone understand how precarious it is, but also how exciting it is.
- [37:57]
Brian Sullivan
All right, well, I'm going to let you go, but before I do have one more question. And it's a big one. And it's about Metta, a company that you know very well that's spending 70 to 80% of its revenue on capex. Help me understand why they would do
- [38:10]
Sam Lessin
that, because we might be at a really important moment in history. Right. And the nice part about having an incredible core business, whether you're a Metta or a Google, is that, you know, you're not spending investor money largely right. What you're doing out is going out and making a huge bet on how different the future might be. And there are real indications it will be right. And so I think what you've seen with a lot of great leaders is they always bet big when they have to in the right moments. And I think the nice part about a Metta or a Google is that fundamentally those are unbelievably strong for building on top of. And they're going to end up with an incredible amount, a huge advantage because of the capex, which by the way, as we're seeing, squeezes on access to GPUs and you know, Elon kind of offloading the anthropic, etc. Like they're not wrong about so far. Right? So either be totally right or they'll have a lot of expensive infrastructure.
- [39:02]
Brian Sullivan
Right. And I guess to quote again, an analyst who was making this point the other day, he said, when I hear Google explain its capex, I understand it. When I hear Metta talk about its capex, I don't. And so, and they have these YOLO options, these crazy options awards for if the company hits these insane growth targets. So I'm just wondering what are they seeing that I, as a, you know, I just think about Instagram. What am I missing?
- [39:23]
Sam Lessin
Well, I think you're missing two things. One is they can use that compute. I mean, they have more human attention than I think any product in the history of the world. Right. And when you think about what we know it's good for, it's for optimizing that. Whether it's, as I said, I've said this from day one that, you know, Meta has the most straightforward AI play of any of these guys. Like it's straight up the middle in terms of how you use that to make a ton of money. The optionality on the world's changing a bunch. We might as well own the core infrastructure that enables that. And maybe you end up being like Elon and saying, look, I have some of the wrong infrastructure of what I need, but these guys over there need it and there's a business deal to do. Maybe you use it yourself. Like, I don't think it's crazy, but it certainly is wild.
- [40:01]
Brian Sullivan
No, that's. That actually makes sense to me and I. All right, maybe, maybe that is an important part, probably the most important part. If it's access to compute and they're going to have. It's an arms race, really. It's fascinating if it is.
- [40:13]
Sam Lessin
And it might turn out that it's not. Right. That's the crazy part about this entire era is it certainly seems like it in this moment. But when you have open source models, you know, one of the funniest outcomes in history could be if it turns out that Apple wins this by doing nothing.
- [40:25]
Brian Sullivan
Right?
- [40:25]
Sam Lessin
Right. Because you can do it on device. It's like, you know that if history loves, you know, funny outcomes, the funniest outcome of all of this is Apple by doing literally nothing but just having a lot of handsets that do matrix multiplication on device wins. Right. But we're many innings from calling that.
- [40:41]
Brian Sullivan
What's the name for that is like the funniest thing that could happen is the one that.
- [40:44]
Sam Lessin
Well, this is, I think this isn't elonism. Right. He's not the first guy who said it's like the most ironic outcome usually wins.
- [40:50]
Brian Sullivan
Sam, thanks for joining us today. Really appreciate it.
- [40:52]
Sam Lessin
Nice to see you.
- [40:53]
Brian Sullivan
Thanks for all your time. Sandler. Sam, lesson coming up. The cyber stocks are lower today, but have been on a tear lately. Get this, the bug. Cyber ETF is up 36% in the in a month. CrowdStrike is up more than 60% over that time. One big question is whether earnings after the Bell will catalog or kill that rally. We'll talk about what to watch out for next. Welcome back. News today that Uber is cutting 23% of its people division a day after the company put caps on AI. Token usage in order to rein in costs. Mackenzie Seagallos has more details in today's tech check.
- [41:31]
Mackenzie Seagallos
Mackenzie hey Kel. So Uber blew through its full year AI coding budget in just 44 months, and now the company is raising that budget again, but with more conditions on who gets the biggest allowances. Now I'm told that Uber's 1500 dollars monthly limit is only the base tier per tool per employee, with separate caps for each approved coding product and then higher tiers can reach into the six figures. Uber is tracking token quotas through employee dashboards, and CEO Dara Khazrushahi said that about 10% of committed code is now built by AI agents, with use cases rising in legal and marketing departments. But the payoff is harder to pin down. CEO Andrew McDonald recently said that AI coding metrics can look amazing, but when he asks senior engineering leaders whether those productivity gains are actually moving more projects into production, he says that link is not there yet. Without a clearer connection to new features and functionality for users, McDonald adding that the spend becomes harder to justify. And it's not just Uber. Priceline tells us it's capping developers at $2,000 in token supply month, while Wal Mart, Amazon and Microsoft are also moving from broad access toward tighter controls on usage, tokens and licenses. Uber is also cutting nearly a quarter of its division that houses H r less than 1% of the company though, and says those cuts are not AI related. But the layoffs do come, as Uber has already made clear that agentic I could help moderate hiring growth.
- [43:01]
Brian Sullivan
So going back to this trend where we've seen, I think it was Walmart, now it's Uber. You mentioned a few others who are limiting token usage. Mackenzie are companies, because I've heard about a lot of companies incentivizing their developers to use more tokens. It's a sign of their productivity. It's how they generate code and do work, even though it's not perfect. So these companies are now saying the bill for that is too high and they're pulling back?
- [43:28]
Mackenzie Seagallos
Well, that precisely. And I feel like Uber is almost accidentally become this corporate Pokemon poster child for the debate of token maxing. And to your point about it not being something that you want to incentivize employees to do, you saw Metta. One employee had an informal dashboard that was up. They took that down. And then our Amazon reporter Annie Palmer got access to audio from an Amazon executive talking about the fact that they were removing one of these dashboards. Again, that pointed to connecting employees to token use, but that Said there are some other informal dashboards being used to connect KPIs to token use. So people are paying attention to that. But I think kind of threading the needle here, it's no longer the cool thing to do to want to be higher up on that leaderboard. If anything, it's quite the opposite. And so Uber is pretty much become this test case looking at whether the spend is worth it. And they are very directly lining up these, these monthly quotas of the 1500 to what they are getting. And at this point the CEO made it clear that the, that more code commits, more tokens, more usage doesn't automatically mean better products for consumers.
- [44:29]
Brian Sullivan
Feels like a bigger deal for the trade if that's the case. Or maybe the anthropic ipo and a lot of this. That's why I'm glad to hear those details. Mac.
- [44:37]
Mackenzie Seagallos
Yeah, and it goes back to our conversation two weeks ago at Google IO and then yesterday our Kate Rooney was at Microsoft's big developer conference. And really so much of the selling point there is our models are don't cost as much per token. They are great for enterprise customers. That's what Sundar Pichai, the Alphabet CEO, is really driving home. That if, if you have enterprise workloads, if you move 80% of them to Google Cloud using Gemini 3.5 Flash, that lighter model that doesn't cost as much as Claude, then you're going to save a billion a year.
- [45:06]
Angelica Peebles
Hmm.
- [45:08]
Brian Sullivan
Now that you say that, I'm like, yeah, and I'm connecting the dots between this is the new pitch. This is how you make inroads against the leaders on an issue that obviously hits home for a lot of, for a lot of companies. Mackenzie, thanks for now. We appreciate it. Mackenzie Seagallos there. Our next guest says token maxing never made sense in the first place and rationality is coming also with cheaper Chinese models. For more, let's bring in Sam Lesson. He's Slow Ventures co founder, as always. Sam, when there's a topic that's making my head ache a little bit, I'm hoping that you can break it down. How did we so quickly go from token maxing, which I never understood. I mean understand a little bit, but again it seems obvious if you're asking people to do a lot of something, it's going to cost a lot of money to the companies now quickly saying, well yeah it did. And so what's the next step in this process?
- [45:53]
Sam Lessin
Look, I think we're just in a speedrun era of a lot of things, you know, We've seen these cycles before. We're just doing these very quickly. But yes, any world in which your goal is to spend as much money as possible is usually the world is not going to last very long. And look, it kind of made sense for a few months. These new tools are released. There's a lot of excitement about what they could do and understanding, pushing the boundaries. He said, look, we want everyone to push the boundaries. Don't worry about cost. Let's just see what's up. And I think what we're seeing now is people are saying, okay, we kind of understand what you can and can't do. We're obviously not going to spend on the most expensive tokens infinitely with no cost controls forever and no roi. And you're just seeing people speedrun that reality. You know, I think the thing you talk about, the rationality, you know, look, I use Claude all day long. I think it's an incredible tool. I also am completely price insensitive on my spending. You know, you look at what's coming in the future, there's going to be a lot of, you know, these things are all rationalizing and commoditizing quickly.
- [46:44]
Brian Sullivan
I almost want to ask you, and because it's you, I sort of feel like I can. But you don't have to answer like, how much are you spending on this stuff?
- [46:50]
Sam Lessin
Because, you know, the funny thing is, to be honest, I don't even track it, but I spend thousands of dollars a month personally on AI tools, effectively just for myself, right? And I'm happy to do it and I get a lot out of it, but it's not a. It's not. There's no cost rationality to it.
- [47:04]
Brian Sullivan
So, Sam, here's. I'm trying to understand as well do these. I don't know whether to call it vibe coding. I understand what they do. I don't know what the correct verb is. Does it work? Right? Does. Does having your developers use these tools actually result? Because the Oracle CEO the other day talked about it as if. Yes, he sort of told us. It was an interview with David Faber. He said we literally work differently now than we did a year ago. And he thinks that's going to continue.
- [47:32]
Sam Lessin
I mean, 100%, you would be crazy to be coding in 2026 or building anything and not using AI in some form. That would be insane. It's like, you know, making artisanal cheese. Like, of course you're going to use it. The question is just one, in what ways? You know, and what are the limits on it? Because there are limits and there are different limits in different scenarios about how you use it. And then to what are you actually using in the end of the day? All any of this stuff is, is multiplying big numbers to use together, right? This is literally like we're just multiplying enormous numbers to like do a bunch of this stuff. And what's happening is, you know, anthropic, I'd say, is the kind of the ultra premium version of it. And they have that premium because they are, I think, probably still the best. You know, OpenAI is also great, except there's a few kind of premium versions of this where cost is no object, they are marginally better, but as everyone else catches up and the cost of per token that they're charging is a tenth or hundredth of what everyone else is, the question is what happens to cost and how do you rationalize that? And then how old ultimately do talk about ROI on any of this stuff, let alone the ROI of the premium stuff.
- [48:31]
Brian Sullivan
If I am a shareholder in Nvidia, in, I don't know, Broadcom, Marvell, Vertive, I mean, Lumentum, you name it, do I need to worry about, I mean, is this the most important kind of narrative for those trades or is this in some ways a side story?
- [48:47]
Sam Lessin
Well, here's what I basically say to be a little glib about it, is it's pretty clear that matrix multiplication, the core workload of inference and all these other things, we're going to do more of that in the future, right? So if you want to go all the way down the stack to copper and power and things like that, the further down you go, the more short. If you believe we're doing more multiple multiplying in the future, you're fine. The higher up you go towards things like Anthropic, OpenAI and then even consumer services on beyond that, you have to have a far more specific opinion about where the price defensibility is and why people going to to pay more for their numbers to be multiplied, right? So, you know, we think about Nvidia, they've innovated a bunch, they're going to continue to, they're going to play a role. You know, the question is how much of a premium is that? It's actually unclear, I argue, is less of a premium than some other parts of the kind of whole ecosystem that you're paying. But it's just that question. I mean, you can go all the way down and say we'll probably use more power. It's true, we Might not, you know, it might be that you're doing it on device with your iPhone and that's actually where the multiplication happens. So you actually need less data centers. But, you know, that's kind of how I would think about it. I think it's a pretty safe bet we'll be multiplying more big numbers.
- [49:53]
Brian Sullivan
Yeah, we're using, using more of it in general. And just because you mentioned kind of the top of the funnel is at the bottom of funnel, the top of the stack there with anthropic and open AI as these IPOs are coming, I mean, this is a different phenomenon than Silicon Valley is used to. It's been going this way for years, obviously. Bigger and bigger and bigger and saying private for longer. I'm just curious what kind of color you'd add being out there in terms of interest in this. There's going to be 30% retail for the Space X IPO. They're setting the price now. Then you have anthropic, then you have OpenAI coming. And do all of these to you seem, you know, like anything that you'd caution people about or just this is where the markets are. They've stayed public so fast, and here they come.
- [50:34]
Sam Lessin
The question, the question is with everything, there's a fundamental reality and there's narrative on top. Right. I would argue that the SpaceX anthropic OpenAI's the strongest narrative of the important world change we've seen in an extremely long time. Right. And so there's an argument that if you believe that this is the future, how can you not be aboard? And I think that is extremely strong. Elon is the greatest storyteller of our generation. And I think that's actually, that's not meant critically, like there's a real value to that, but that's just the gap is between fundamentals and what you believe about the future. And the thing is, when things are growing so, so quickly, you can tell a lot of stories. And small, small changes in the angle of that curve curve result in massively different realities when you add a few years. And I think that's what everyone's trying to figure out. I mean, it's really exciting. It's really different. I think everyone understand how precarious it is, but also how exciting it is.
- [51:20]
Brian Sullivan
All right, I'm going to let you go, but before I do have one more question. And it's a big one. And it's about Metta, a company that you know very well that's spending 70 to 80% of its revenue on capex. Help me understand why they would do
- [51:34]
Sam Lessin
that, because we might be at a really important moment in history, right? And the nice part about having an incredible core business, whether you're a Metta or a Google, is that, you know, you're not spending investor money largely right. What you're doing out is going out and making a huge bet on how different the future might be. And there are real indications it will be right. And so I think you've seen with a lot of great leaders is they always bet big when they have to in the right moments. And I think the nice part about a Metta or a Google is that fundamentally those are unbelievably strong for building on top of. And they're going to end up with an incredible amount, a huge advantage because of the capex, which by the way, as we're seeing, squeezes on access to GPUs and you know, Elon kind of offloading the anthropic, etc. Like they're not wrong about so far, right? So either be totally right or they'll have a lot of expensive infrastructure.
- [52:26]
Brian Sullivan
Right? And I guess to quote again, an analyst who was making this point the other day, he said, when I hear Google explain, explain its capex, I understand it. When I hear Metta talk about its capex, I don't. And so, and they have these YOLO options, these crazy options awards for if the company hits these insane growth targets. So I'm just wondering, what are they seeing that I, as a, you know, I just think about Instagram. What am I missing?
- [52:47]
Sam Lessin
Well, I think you're missing two things. One is they can use that compute. I mean, they have more human attention than I think any product in the history of the world, right? And when you think about what AI we know it's good for, for, it's for optimizing that. Whether it's, as I said, I've said this from day one that, you know, Meta has the most straightforward AI play of any of these guys. Like it's straight up the middle in terms of how you use that to make a ton of money. The optionality on the world's changing a bunch. We might as well own the core infrastructure that enables that. And maybe you end up being like Elon and saying, look, I have some of the wrong infrastructure of what I need, but these guys over there need it and there's a business deal to do. Maybe you use it yourself. Like, I don't think it's crazy, but it certainly is wild.
- [53:25]
Brian Sullivan
No, that's that actually makes sense to me. All right, maybe, maybe that is an important part. Probably the most important part. If it's access to compute and they're going to have. It's an arms race really. It's fascinating if it is.
- [53:36]
Sam Lessin
And it might turn out that it's not. Right. That's the crazy part about this entire era is it certainly seems like it in this moment. But when you have open source models, you know, one of the funniest outcomes in history could be if it turns out that Apple wins this by doing nothing.
- [53:49]
Brian Sullivan
Right.
- [53:49]
Sam Lessin
Right. Because you can do it on device. It's like, you know that if history loves, you know, funny outcomes, the funniest outcome of all this is Apple by doing literally nothing but just having a lot of handsets that do matrix multiplication on device wins. Right. But we're, we're many innings from calling that.
- [54:05]
Brian Sullivan
What's the name for that is like the funniest thing that can happen is the one that, well, this is, I
- [54:08]
Sam Lessin
think this isn't elonism. Right. He's not the first guy like him. So it's like the most ironic outcome usually wins.
- [54:13]
Brian Sullivan
Sam, thanks for joining us today. Really appreciate it.
- [54:16]
Sam Lessin
Nice to see you.
- [54:16]
Brian Sullivan
Thanks for all your time. Sandless Sam, lesson coming up. The cyber stocks are lower today but have been on a tear lately. Get this, the bug. Cyber ETF is up 36% in a month. CrowdStrike is up more than 60% over that time. One big question is whether earnings after the bell will catalyze or kill that rally. We'll talk about what to watch out for next. Welcome back. The cyber stocks are taking a breather today, but it's been a huge run up. Crowdstrike up more than 60% in the past month and they report after the bell. SIMA Modi is here with more sima. What are we looking out?
- [54:52]
Sima Modi
Yeah, well, cyber certainly in focus today. Specifically, Kelly, the reversal that we are seeing in Palo Alto network shares, that's drawing a lot of debate. It was a strong beat for the third quarter but as UBS notes, expectations were high and that organic revenue growth did decelerate for a third straight quarter. CEO Nikesh Arora telling our colleague Jim Cramer, mythos is exceeding expanding the cybersecurity opportunity.
- [55:16]
Ryan Kelly
There's only one long term solution is to consolidate, platformize, bring all your cyber data in one place and fight AI with AI. And that's become apparent to not just the market and to everyone in the last, I think 90 days or so that you know, we are a net enabler of Better cybersecurity. We're not a victim of amazing AI that's going to happen in the future.
- [55:38]
Sima Modi
Our attention now turns to its direct competitor, CrowdStrike, which reports tonight analysts are looking for a sizable jump in quarterly earnings and revenue. But similar to Palo Alto, the bar is high. And competition is also ramping with IBM unveiling its own cybersecurity offering last week. CEO Arvind Krishna telling me at the time that Mythos motivated IBM to get in the game and that all the major banks have signed up. That's why CrowdStrike tonight, Kelly needs to tell Wall street that enterprise adoption is growing. That's where they're going to be looking for and that it doesn't see the big AI labs as stealing market share. That's continues to be an open ended question.
- [56:12]
Brian Sullivan
And then we've got Quantum around the corner and that, you know, if that breaks encryption, they might need to ramp up again with what's coming. So it seems like, and I don't know why, 60% in just the past month, but it seems like AI and the new compute that is coming is going to increase the need for these companies to do more than ever before.
- [56:29]
Sima Modi
That is the overarching assumption and even going into this report last night that the terminal value of the cybersecurity market is only going to increase with the big labs coming out with these new models that can be disruptive in their own ways. And then to your other point about Quantum, there's just a need for more protection. But if that's the case, why are the earnings being like blowout numbers? The bar is high. We'll have to see what CrowdStrike gives us tonight.
- [56:50]
Brian Sullivan
Yeah, it's a great and maybe with the software trade kind of improving a little. These are fundamentally software play.
- [56:55]
Sima Modi
They are, yeah, absolutely. That's part of it. And overall IGV is down today.
- [57:00]
Brian Sullivan
Seema, thanks. We really appreciate it. We'll look for CrowdStrike after the bell and coming up, the discount retail trade, well that's mostly higher today and what's otherwise kind of a down market as some chains are starting to attract a different demographic and they're getting a big boost from it. That's next. Welcome back to the Exchange. The dollar stores are getting a boost from a surprising demographic, namely high income earners. Brandon Gomez is here with more on what's driving the trend. And you've got the data. We can see, we can literally see this happen.
- [57:40]
Brandon Gomez
You can see it and you know who is gravitating towards these stores. We heard this from most discount retailers this quarter. Most recently the dollar stores. Last week Dollar Tree told us they saw growth. Dollar General yesterday beating on profits, raising its full year earnings outlook as shoppers look for value. And just this morning, all these bargain Outlet CEO saying the trade down was very strong in higher income. Now Dollar General said something similar on its earnings call, pointing out that it saw an accelerating trade in or trade down effect as we call it, with higher income shoppers increasingly turning to discounts and that line in the sand is drawn at the households earning more than $100,000 a year. Well, I reached out to Consumer Edge which collects credit and debit card data and that whole holds true. These bars are grouped by 90 day windows going back several quarters. If you focus in on those green and gray bars, you see that the last several quarters that income group, $100,000 plus income earners have been driving broader dollar store spending. Now what's causing that shift? Dollar General said shoppers are distressed right now and that persists with inflation and sustained higher gas prices above $4. These companies expect that to persist throughout the rest of 2026, including clearly, Kelly, more consumers are feeling that across the board. Therefore, turning to these discount retailers, if
- [58:49]
Brian Sullivan
we can show that chart for one more moment, it's fascinating because this is not just over 100k in income because you could argue there's a little bit of an inflationary effect there. 100k is not what it used to be. Your chart shows 160k and higher and the comps in that group for some of these stores. Look at all the way to the right of your screen there.
- [59:06]
Ryan Kelly
Yeah.
- [59:06]
Brian Sullivan
Is up 6%.
- [59:08]
Brandon Gomez
Yeah. Those gray bars.
- [59:09]
Sam Lessin
Right.
- [59:09]
Brandon Gomez
And you're seeing that that's the largest growth of share for these discount retailers. Now it's interesting because it is category by category too, which we don't have the granular data to show. But Dollar General told us grocery was a growing business for them. Their pharmacy business was a growing business for them. But then you also hold it against say like a Victoria's Secret which said that the 200,000 plus club, but then also the 50k below club were growing share.
- [59:33]
Brian Sullivan
Is that what Victoria's. Because those shares were up 44% yesterday.
- [59:36]
Brandon Gomez
Yeah. So they kind of gave us a little bit more insight to the 50k and below and the 2,200k and above. And then the dollar stores are really sort of breaking out. What's happening with that 100k consumer in the middle there?
- [59:45]
Brian Sullivan
Sometimes I wonder if it's just easier to park at some of these locations. I mean, if you want to just run in and run out. There is a convenience factor that they have. It's a smaller store size, quicker checkout, quicker to find the item that you need. That's probably not driving all of it,
- [59:57]
Brandon Gomez
but I wonder, but convenience and fewer trips. People are thinking about how much gas they're spending to get to these stores. They can go to a one stop shop for their grocery, but also their discretionary needs. They're going to do it in one trip.
- [60:07]
Brian Sullivan
We'll see if this turns out to be a warning sign or just, you know, kind of the new normal. Brendan, thanks. We appreciate it. Brandon Gomez, before we go, the Quantum stocks are under some pressure today, perhaps giving back some of yesterday's gains when IBM announced plans to invest more than $10 billion into Quantum. IBM is set to snap a five day win streak. They were up 30% before today's 6% decline. You can see some of the other popular Quantum names selling off today as well. And that's it for us. Thank you for watching the Exchange. Brian Sullivan will join us for Power Lunch right after this break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
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