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The Nvidia Read-Through, Bond Market Headwinds, Government’s Quantum Leap 5/21/26
00:44:04
Nvidia’s earnings beat, stock buyback, and dividend hike not exciting Wall Street, but one chip subsector is seeing a boost. Greg Ip’s “dangerous brew that’s rattling bond markets.” And the CEO of D-Wave Quantum discusses the government’s new $100M stake.
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- [00:00]
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- [00:55]
Kelly Evans
You're listening to the Exchange. Here's today's show. Thank you very much, Scott. The President says he is postponing his executive order signing today because he, quote unquote, didn't like certain aspects. The market feeling the same way today about Wal Mart and Nvidia's earnings and to some extent those space X financials we got last night. Welcome to the Exchange. I'm Kelly Evans. Stocks are slightly lower as yields and oil rise and some bumpy earnings results today. The 10 year back above 4.6%. Crude oil back above 101. Software names are among the biggest lagg as Intuit sinks 20% on results and those big job cuts workday. Adobe and ServiceNow are selling off as well. And Wal Mart shares are down about 7% after results now 7 and a half. We'll circle back to that one in a bit. But let's begin with Nvidia. A pristine quarter of buyback and a dividend raise and the shares are still down about 1 1/2 percent, although the memory stocks were cheered by what they heard. Let's bring in Michael San Satara, Sylvan Capital Management cio, who is here for our opening exchange. Michael, welcome to you. What are the big takeaways here, here?
- [02:04]
Michael San Satarra
Yeah, morning, Kelly. I think it's pretty clear that the trade is alive. It's just a matter of how much is priced in the Nvidia quarter, to your point, was fantastic. Strong across the board. Strong beats strong. Raises a lot of visibility into the business going forward, particularly on the CPU side, which I think is a little bit of a different tone than We've even heard for the last couple of quarters, you know, the stock is down a little bit. But if you look back historically at this time, five out of the seven last quarters, the stock tends to trade off a little bit after the news anyway. So I don't think there's anything to worry about. From a stock perspective. The fundamentals are incredibly solid. The question is, is there a little bit of fatigue in the market? You know, we've been hitting all time highs. The stock's done quite well recently, up 20% year to date. Maybe this is the digestion period that makes a healthy market going forward.
- [02:58]
Kelly Evans
If I'm not mistaken, this is about 15% of your fund's allocation, is it not? So this is a big bet you're making and a lot of confidence you have that this company is going to continue to perform well.
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Michael San Satarra
Yes, absolutely. In the, in the Virtus Sullivan focused growth fund. It's one of our larger position sizes from a relative perspective and it is the largest position size from an absolute perspective. So you're right. We, we do have a lot riding on this. We have for, for many years now. The goal of course, is to beat the Brussels 1000 Growth Index. And we think this stock is continuing to do that. It just doesn't do it in the, in the sort of way it did back in 2023, 2024. But we do believe that this is a perfectly situated grow company, very reasonably priced growth actually accelerating. I mean, this is a 90% grower growing to 95%. And I think folks are still struggling with that reality. It's shocking to them that something this big can grow that quickly. But it is the dominant player. They've managed to stay ahead of all the technical curves, be it CPUs, be it networking, be it software, even, even the GROK deal and expanding into LPU's. This is what a cutting edge company needs to do to command this type of space. And they're doing it in spades, obviously.
- [04:12]
Kelly Evans
Where do you come down on the semis versus software trade? It sounds like you would still go with the semi side of things, which remain, again, not a huge part of the portfolio.
- [04:20]
Michael San Satarra
Yeah, we know, we like them both still. You know, we think some of the software names are actually oversold on fear that AI disrupts everything to zero. We don't own an Intuit as an example today, but the Intuit reaction is pretty severe. And what's, that's what we've seen, right? There's a lot of fear in the market, how much disruption how much strength from an Nvidia speaks and leaks its way over to software. And I think, I think a little bit of that is fear. But if you look at some companies like CrowdStrike, which we own has come back nicely, you know, there's going to be winners and losers, there's going to be folks that get displaced and there'll be other software companies that actually incorporate it.
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Alan Barrett
Right.
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Michael San Satarra
They just bring it along with them. They hold on to their positions and they probably do better over the long term. In the short term, yeah, the corporate IT spend is on the margin, not in software, it's in hardware. So beating the numbers, raising expectations in software, broadly corporate software, it's going to be more challenging. But we like them long term. We're not throwing the baby out with the bathwater at this point.
- [05:18]
Kelly Evans
If we speak a year from now, are the biggest holdings in that large cap growth fund going to be Space X, OpenAI and Anthropic?
- [05:27]
Michael San Satarra
That's a great question. You know, we just got the S1, so we are obviously digging deep in, into the SpaceX financials. Suffice to say that OpenAI and Anthropic are fantastic companies. These, these frontier models are growing at speeds we've never seen. Truly, having been through the Internet bubble, myself as an analyst watching those companies grow crazy fast. This is crazy fast times three. So there's absolute interest there. I suspect these will be large cap dominant names. You don't know until you look at the numbers, but there's certainly possibilities. We're excited about analyzing each and every one of them.
- [06:02]
Kelly Evans
And if you were to make space in the portfolio for. I like how you just said it, growth companies times three or maybe growth cubed or something, growth to the third power. I don't know what would you. And we don't know until, until we know. But I'm just thinking through kind of the market positioning here. Every portfolio manager is going to have to maybe sell something to make room for these new holdings. And I don't know if you're already thinking about what, what that would be.
- [06:28]
Michael San Satarra
Yeah, I mean, we do the work on all these companies, you know, long before they come public to the extent that we can. But the numbers really do matter here. You're right. You'll have to make a decision as to, you know, where do we put a space X. Let's just start there. Does the Russell folks put it in industrials, in communications, in technology? There'll be debate and discussion around that. How quickly does it go into the index? There'll be all kinds of stuff we don't quite yet know for sure. So I think there's be opportunities. You can always run a sell program across any major portfolio and say, look, take a little bit out every name. I'm making space for a 1% position, a 2% position in this new stock. You can do that, you can do that. It's pretty clean. The question really becomes how big will these companies be in the index? And that won't be known for a while. Right. If SpaceX comes out, we call it a trillion five and it goes into the index quickly. And Russell's been relatively consistent about waiting a certain amount of time before they add names. But they've also been willing to be a little more flexible in the last year or so. They use a two time rebalance per year now. So I think that that signals to me they're trying to be a little bit more focused on keeping the mega cap names in the index from getting quote unquote too big because it makes their job harder, it makes our job harder. But, but you ask yourself how long will it take them to get it in the index? What size will they put it into? Those will matter. Those that will direct flows when people buy passive funds, that will direct flows when you buy active funds. So there's a lot of unknowns. We're going to have to work through them one at a time. But we'll be looking closely at all of them. They're all good businesses. They're all taking and disrupting markets. That's, that's the kind of business you want to be analyzing. Potentially own a great point about which
- [08:08]
Kelly Evans
sector it might go into. And Michael, just before I let you go on this as well, if we think through some of the rule changes that NASDAQ and others are making to accommodate these mega IPOs, the reporting around it suggests it's over. I don't want to say nefarious, but that they're almost giving them kind of special treatment. But do you think they need special treatment? In other words, would we be better off with these companies quickly being able to be added to those major indexes or not? Maybe. I don't like, I don't know if you can hear me. I'll put the question out there for everyone to answer. Michael San Satarra from Silvic Capital Management. We'll bring him back on soon. Let's stay with Space X. We did get those new details out last night on the company's upcoming public debut, likely to be the largest IPO ever before we get to the numbers. Here's what Jeff Bezos told Andrew Ross Sorkin about what he thinks of Space X.
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Jeff Bezos
We have to build a vehicle that not only does the mission, but does it inexpensively. And that unlocks a lot of progress for humanity if we can do that. And that's what SpaceX is working on. You know, this people ask me some about SpaceX and I would say I think I'm very admiring of what SpaceX has done and I want the world to have at least two Space X's.
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Dan Primack
Right.
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Jeff Bezos
You know, maybe even more. Great industries are made up of many companies.
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Kelly Evans
That all said, our next guest says Space X may not exactly be the financial juggernaut that many were expecting. Axios business editor Dan Primack is here for more. Dan, I think a lot of people thought, wow, what was it? Several billion dollars of losses on the revenues that they've reported so far. What jumped out to you?
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Dan Primack
Yeah, to me it was more the top line than the bottom. I mean, I expected big losses, particularly with the integration of XI and all of these big frontier lab types. Companies are losing money. It was more the revenue side. Space X, if it was to go public today, it would be exactly 200 one in the S&P 500 in terms of top line revenue, another for 2025. In other words, there's 200 companies that brought in more money. That's a little surprising given that you'd be talking about a company based on where it wants to be valued. That would be a top 10 company.
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Unidentified Listener/Interjector
Hmm.
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Kelly Evans
So in other words, the size is top 10, but the revenues are, you know, number 200.
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Dan Primack
Yeah, look, I mean Tesla, which would technically be a lower market cap, again based on where Space X wants to be, Tesla has five times the revenue of Space X. And again, this is a growth story, no doubt, because this is kind of a new company, right? A new conglomerate focused on AI. The rocket ship piece is, you know, well, well over a decade and a half, two decades old. That part's still losing money. The only part of the business that makes money right now is Starlink, which is growing in terms of subscribers, but is, is decreasing a bit in terms of revenue per subscriber.
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Kelly Evans
So its revenues last year for Space, for, for Space X were a little over 18 billion in total, do you think? And not to mention the losses, the net loss that was 5 billion. So in other words, made 18 billion, lost 23. Net loss of 5. Does that tell you a 1 1/4, 1 1/2, 1 1/4 valuation?
- [11:14]
Dan Primack
I mean, it shouldn't. But this becomes an Elon Musk story, right? So many of the people, and I've talked to institutional investors, folks who are representing retail investors. This is an Elon We Trust story. If you believe in Musk's vision, then you buy this and think it can somehow grow into that valuation. And that, that's really the bet here. I think that a lot of people are making. It's the bet that a lot of the venture capitalists who did X and Did X AI and did Space X made.
- [11:39]
Kelly Evans
I think in the filing he said there was what, like a $28 trillion total addressable market and 24 trillion of that was almost undefined. It was, it was sort of for future opportunities. What also jumped out to me, I think he gets a billion shares. Is that right? Is it a billion shares or a billion. A billion shares? I think it is. If he puts a colony on Mars.
- [11:59]
Dan Primack
Yes, if he puts a colony on Mars. I mean, they're not on the moon yet. So yes, if you can get a colony to Mars, I mean, you want to talk about a long term investment, a long hold investment, this would be that, let alone will must you around at that point. What's notable though, here is a thing that's notable is both Open Air and Anthropic, which to some extent have the same vision, right? They're not making rockets, but on the AI side they both seem to make a lot more money. But even within that though, there are ties, right? You learned yesterday that Anthropic is paying one and a quarter billion dollars per month starting now per month to Space X for compute power. So these, now they can kill that deal with 90 days notice. Either side can. But again, these companies are so tied together. So it is going to be a question, I think, for investors, if they're already kind of interconnected, do I want to own both of them or do I want to just take one? Maybe the one that's buying as opposed to the vendor on Compute.
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Kelly Evans
That's a fascinating side note. So Starlink, as we learned, is probably the biggest revenue business. The Falcon 9 business, a little bit smaller than that. Why are the losses on X so large? Because of the compute spend.
- [13:05]
Dan Primack
Because of the compute spend and because it's not making an enormous amount of money. I mean, one thing that was interesting about this, if you look in Q1 from the, from the S1, if you look in Q1 in terms of their unit, which includes Compute, but also includes what we know as Twitter and Grok, it made less money top line than old Twitter did in the last first quarter before Elon Musk bought it. So, yeah, the losses on that are really all the compute and everything they're spending with this big shiny object at the end. Look, anthropic and open AI, you know, both burn a lot of money to. Anthropic might, you know, be profitable eventually or soon on a kind of annualized basis. But they're spending a ton. They don't bring in a huge amount of revenue on actual AI.
- [13:46]
Kelly Evans
Finally, does any of this, you think, seriously dent the prospects for them to raise the last of, you know, maybe one and a half trillion is about where we're hearing because this thing is going to happen now in what, about three weeks time?
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Dan Primack
Yeah, sometime mid June. Mid to late June, I guess, depending on how you define it. It may. I mean, there's a lot of questions here still. Right. And this isn't surprising. Right. This is just the S1. We're going to wait for that S1A, the amended filing that's going to have pricing terms that'll probably have more financials in here. Maybe they'll even be an update on the Cursor situation. What we learned in here, we knew that they had agreed to buy Cursor or they had an option to buy it for $60 billion. What we learned from here, though, is that the due diligence isn't completed yet and there are big termination fees if they decide not to move forward with it. And they only have about a month to make that determination.
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Kelly Evans
Was it eight and a half billion, is that right? The termination fee?
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Dan Primack
Eight and a half billion on some sort of kind of services agreement. But then one and a half I believe, and I'm speaking a little out of school here, but I think it's one and a half pure termination fee and then eight and a half on a services agreement.
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Kelly Evans
Wow. All right, Dan, for now, appreciate it. It's been at least fun and interesting to pour through a company that we've had very little light into previously. Appreciate your time, Dan. Thanks. Dan Primack joining us there from Axios. Coming up, a deep dive on the country's debt dilemma. The Wall Street Journal's Greg it warning of a dangerous brew that's rattling bond markets. We'll ask him about that next. Plus, the quantum stock surging as the Commerce Department reportedly plans to award billions of dollars to nine companies, including the cash infusion could result in government equity stakes as well. We're going to talk to D Wave CEO about that coming up on The Exchange
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Kelly Evans
Welcome back. Treasury yields are higher again after a brief pullback yesterday the 10 year hit its highest level in over a year. This week that 30 year touched a 19 year high. Global bond markets are feeling the pressure as well as bond vigilantes put some pressure on the new Fed chair Kevin Warsh. But my next guest says something bigger is brewing, a fundamental shift that could keep rates higher for much longer. Greg Epp is chief Economics Commentator at the Wall Street Journal. Greg, it's good to see you and walk us through this.
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Greg Ip
Thanks Kelly. I think there are sort of three basic ingredients that we've seen going on for a while now and we got reminders of them in the last week. Their debt, inflation and populism and they all kind of interact. And to be honest Kelly, I'm a little surprised that it's taken this long for some of these things to be really felt in the long end of the bond market. I mean think about it, the 10 year yield today, it's actually still lower than it was in 2023. But just to step back a little bit, one of the reasons it's it was as high as it was back then was because the Fed had the federal funds rate. Well above 5% today it's around 3.5%. So one of the reasons yields are going up now is because people are very worried about the long term picture for things like debt. And we just see nothing in any country, no will on part of any party to actually deal with these very large deficits which by the way are much larger than we've seen in the past. I mean the US is going to have a 6.5% of GDP deficit this year, the largest it's ever had outside of wars, recessions or emergencies. And then that I think actually kind of feeds on the inflation thing. And in fact one of the things you're seeing right now is that like for example in Japan, what is their response to the oil price spike? We're going to borrow some more to help consumers. We're not going to worry about the fact that our debt is so large. So that I think the political will, the absence of political will to deal with, with debt I think is one of the factors that's feeding nervousness about investors out there. And I think it's sort of like feeds on the inflation thing as well.
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Kelly Evans
It's also hard to understand why we would have the ten year four and a half percent today when it was at six and a half in the late nineties and we were running a government surplus, a budget surplus.
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Greg Ip
I think that people are still sort of stuck in the like the late of the 2010 when we were in this like secular stagnation period, inflation was always very low and the Fed was always keeping interest rates close to zero. But just look at inflation Kelly. I mean we've repeated this over and over again. Inflation has been above the 2% target for four or five years now. It's averaged 3% for four years. And we say well that's because of these one offs. It was supply chains because of COVID it was because of Ukraine, it was because of tariffs and now it's because of Iran. But you know, once you have like a one off shock every few months you begin to wonder are these really one offs? I think Kelly, we need to grapple with the possibility that we're in a world of repeated serial supply shocks because protectionism, war, geopolitical tension, disease, extreme weather are going to be repeated sources of supply side shocks. And that even if you have a Fed dedicated to sustaining its 2% inflation target, that's a world where the Fed has to keep raising interest rates to get back to the 2% target. That is a world that is simply not compatible with like bond yields perpetually below 4%.
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Kelly Evans
I think normally I'd say if you have supply shocks, the Fed shouldn't react to that. You know, they shouldn't tighten. But I think about it, I go, well, if the, if the U.S. economy is relatively sound and the labor market looks pretty good the last couple of months, these supply shocks which are pushing up prices a little bit, the consumer can pay it. We saw this during COVID because people got stimulus checks, they could pay 8, 10% price surges. So the consumer can basically pay for these price hikes now, which is how they become entrenched. I mean, in a weird way is what you're saying, the economy is strong enough that they're going to pay, that this inflation is going to. So is the Fed's only option then to slow the economy?
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Greg Ip
Well, it's a little too early, I think, for the Fed to take a definitive view on that. But I think you put your finger on exactly the right tension here. So when the war broke out at the Fed, they said, well, we know this will have two effects. Higher prices will be bad for inflation. That means firmer monetary policy. But they're bad for consumers. That means easier monetary policy. Here we are two or three months later, we don't really see much evidence of that harm on consumers. The labor market, if anything, is actually stronger than it was a few months ago. But we're seeing plenty of effect on inflation. That alone, I think biases you to treating the inflation part of the problem rather than the consumer part of the problem. And then I think, yes, you ask question, well, why are consumers not suffering more? And I think it's partly because we've had four or five, sorry, three or four years of very rapid nominal income, nominal GDP growth, very loose financial conditions, very high stock prices, and there's just not a lot of need for people to essentially substitute away from things when their prices go up. And I think that is a world that is very sort of conducive to allowing these second round effects of inflation to occur. But it's, although I would add as a caveat, we're not seeing it yet.
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Kelly Evans
It's weird that you're describing a world in which governments are overspending. They're perhaps making policy choices as well that are driving up prices. And Kevin Warsh is coming in to say inflation is still the central bank's responsibility. So his only choice really is to tighten policy and slow the economy in response to what's happening on the government side of the ledger.
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Greg Ip
I mean, yes, I mean a lot of things that Kevin Wash has said in the past are going to be, he's going to be reminded of those. For example, he had regularly said that the Fed needed to lean against fiscal profligacy and overspending. Well, we have a government that's spending a lot of money. We want to basically send another extra $300 billion to the Pentagon. There's talk about like a gasoline tax cut and so forth. But to be consistent, those are the sorts of things that ought to make Kevin Warsh more hawkish. Now that said, he has time. He doesn't need to decide, you know, next week what his response to these forces are going to be. There are legitimate arguments to be made that what we're seeing with especially energy will in fact, to use that disgraced term, be transitory. The labor market is not generating the kind of wage pressures that would be strong evidence of second round effects. But as I said, when you keep having these events come along every few months and then like, you know, we've got a super El Nino building in the South Pacific this year, maybe that causes crop failures, other supportive supply disruptions, I think that it's incumbent on the Fed to begin to realize that we're in a different world than we were five or six years ago.
- [23:15]
Kelly Evans
Yeah. And then you have rhetoric from the UK or the one of one of their, their socialists, I guess it called them. But anyway, he said Britain should not be in hock to the bond market. And if that spreads as well, I think it would be look out above when it comes to bond yields.
- [23:29]
Greg Ip
Yeah, no, you're absolutely right. But it's not just there by the way, Kelly, I mean the Democrats were all upset with the economic program of Donald Trump. Do you hear them saying, well, therefore we need to have austerity, less spending and higher taxes? No, they're actually talking about more spending on like health care subsidies and like abolish, you know, essentially getting rid of all taxes for middle class households. So it's not like investors can look around and say, well, the next government is going to be more responsible.
- [23:54]
Kelly Evans
Exactly. Not at this point on either side of the pond or on either party. Greg, thanks very much. Appreciate it. All right, Greg of the Wall street journal. Coming up, SpaceX sealing the spotlight for its IPO today. But OpenAI and Anthropic aren't too far behind them in the race to go public. We have more details next. And as we head to break, check out shares of Ralph Lauren leading the S and P up 13% today after strong results as sales rose in the latest quarter. The surprise it was China lifting the numbers, Ralph Lauren saying China sales rose to more than 50% growth in the quarter. Benefiting from the lunar New Year and new customers, the stock is now positive on the year.
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Kelly Evans
Welcome back. Stocks are shifting to positive footing this hour. You can see the Dow are erasing a nearly 311 point loss. Earlier on we're up 135 strength in the Russell's as well which we've seen all day long. They're up about 2/3 of a percent. We'll wait for more information there. And we're keeping an eye on shares of Deere which are selling off after better than expected results are down about four and a half percent. They only reaffirmed full year net income guidance. Still the shares are up 14% since January and cerebras is down for a second straight day after last week's big debut. The shares, Remember, priced at 185, opened at 350, ended their first day at 311. Since then they've drifted lower to 78 today, still valued at $60 billion in market cap. Speaking of IPOs, Space X officially kicking off the race to the public markets with its S1 filing last night as we're getting new details about Anthropic and OpenAI. Kate Rooney has more in today's tech check. Hi Kate.
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Kate Rooney
Hey there Kelly. So Open Air is preparing to file for an ipo coming confidentially as soon as Friday and looking to go public as soon as September. This is according to a source familiar with that deal process. It would follow this record breaking Space X listing you've been talking about with its own AI Business X. I am also told by sources that rival Anthropic has been getting IPO ready behind the scenes but TBD there on timing it's a little bit more fluid. OpenAI though is planting the flag here with Wall street to get out first and ahead of its biggest competitor. Bankers that I'm talking to keep pointing to Uber and Lyft in that competition being first lets the company set the benchmarks and it helps justify some of the losses in this case when you look at AI and helps really tell their story to Wall Street. Some eye popping new numbers though Kelly from anthropic highlight why OpenAI might be so motivated to get out first. We are hearing from sources that Anthropic is on Track to generate $10.9 billion in revenue. That's for the first quarter. That would top up up its sales for all of last year. Double Anthropic sales from just the first quarter and would mark its first profitable quarter again. This is according to a source familiar with Anthropics financials. Both have a large burn rate too though if you look at some of the losses, OpenAI has taken a much more aggressive approach on data center build out and computing overall. Does argue though that that is a strategic advantage amid this compute crunch that we talk about. But it could also mean larger near term losses and then back to Space X for a second. Capex has been what they call the dominant and fastest growing cost center. 7.7 billion in just Q1 alone. It's roughly 60% of all the capital Space X is spending Kelly but amazing,
- [28:33]
Kelly Evans
the Anthropic's first quarter revenue is half of what Space X revenue was in all of last year.
- [28:39]
Kate Rooney
That's a great point. And Space X a different business. Anthropic is so core enterprise where SpaceX is obviously as it's a really a rocket company sort of an AI company attached. So it's sort of apples to oranges. But I think if you can extrapolate anything from the Space X S1 it is the losses, it's how expensive it is to actually build this. Although Anthropic seems to be I mean if they hit profitability at least in one quarter it shows that they're they're able to do it ahead of an IPO and maybe puts less pressure to get out ahead of Open. I think the pressure on OpenAI is to go and tell the story. And I'm very interested when we do get these S ones to see how they frame the losses, what the numbers look like, but could be a few months from now. All right.
- [29:18]
Kelly Evans
Although, yeah, maybe we'll get that filing for the IPO at least a little bit sooner. Kate, thanks very much. Kate Rooney to Pippa Stevens now for the CNBC news update. Pippa.
- [29:27]
Gabrielle Fon Rouge
Hey, Kelly.
- [29:28]
Unidentified Listener/Interjector
Senators Ron Wyden and Chuck Schumer proposed a bill that would put a 100% tax on payments from the Department of Justice's 1.8 billion Anti Weaponization Fund that was was announced Monday. The bill says anyone who attempts to evade the tax would receive a 50% penalty and would also require the secretary of the treasury to publicly report payments from the fund. Secretary of State Marco Rubio says the likelihood of a negotiated peaceful agreement between the US And Cuba is not high. The comments come after former Cuban President Raul Castro was charged criminally in the US yesterday. Rubio also saying that Cuba has accepted the US offer of 100 million in humanitarian aid after blaming Cuba's leaders for its electricity, food and fuel shortages. And the U.S. commission of Fine Arts approved the design for the triumphal arch that President Trump wants to build at the entrance to Washington, D.C. approval is a key step in the project's process, which is facing lawsuits from a group of veterans and a historian for disrupting the view of of Arlington National Cemetery. Kelly, back to you.
- [30:32]
Kelly Evans
All right, Pippa, thanks very much. Coming up, D Wave is one of nine companies receiving part of a $2 billion cash infusion from the US government. What else is part of the deal? We'll ask D Wave's CEO about that. Quantum company surging there. Welcome back. D wave up 27% today after the administration announced it will invest $2 billion in quantum companies in exchange for equity stakes. In an effort to boost the industry, D Wave received $100 million equity investment. Here now with more is D Wave Quantum CEO Alan Barrett's. Alan, it's great to see you. Welcome.
- [31:26]
Alan Barrett
Thank you, Kelly. And it's a pleasure to be here with you today.
- [31:28]
Kelly Evans
Why did the government need to get involved here? The retail investors were perfectly happy to bid up your.
- [31:34]
Alan Barrett
Well, this is really about the government and quantum computing companies forming a partnership to help drive quantum innovation and leadership for the United States. In the case of D Wave, it represents a significant endorsement by the US Government in our company as well as both our annealing and our gate model quantum computing products and will accelerate shift the time for us to Bring scaled versions of those products to market by several years.
- [32:07]
Kelly Evans
How much are you getting from them? $100 million.
- [32:10]
Alan Barrett
$100 million.
- [32:11]
Kelly Evans
Now listen, I wouldn't mind $100 million myself, but I'm just truly wondering, how much difference does $100 million make to your company and to that timeline?
- [32:23]
Alan Barrett
Well, look, we are the oldest quantum computing company. We were founded almost 20 years ago. Over the course of the last 20 years, we've been able to bring our annealing quantum computers to market to the point where today they are commercial in use by a broad array of companies as a part of their business operations. It took us 20 years to get to this point and it took us on the order of $500 million to get here now, $500 million to get here.
- [32:55]
Kate Rooney
It.
- [32:55]
Alan Barrett
That's not a ton of money. Now what we are doing is scaling our Annealing products and working to bring our gate model products to market. So if you think about it on the gate model side, you know, $100 million as a 20% or 25% uplift is very significant.
- [33:14]
Kelly Evans
Right. And again, just to Clarify, this is $100 million stake, is that right?
- [33:19]
Alan Barrett
So it's $100 million to be basically used by the company to advance its R and D efforts around both annealing and gate model products, to accelerate the time to get scaled versions of these products into the market. And as a part of the deal, the US government will get $100 million worth of equity in D wave.
- [33:45]
Kelly Evans
Okay, you could do $100 million, you know, secondary or something. Right. Like what my concern is, I want your company to be very successful. I want all the quantum companies to be very successful and to be in a battle with each other, you know, for primacy and all that. I worry a little bit that all of these government handouts, let's call it, I know, I know it's not a handout, but that they could risk making your company and other companies less efficient because you didn't have to work as hard for that $100 million. Can you arrest my fears?
- [34:14]
Alan Barrett
Sure. So As I said, 20% to 25% is a significant uplift, but there's still another 75% that we still have to fund. We still have to work very hard to ensure that we're good stewards of our shareholders investment and that we are operating very efficiently and very effectively. We have been over the last 20 years and we will continue to do that in the future. But there's another aspect to this that's really important and that is the US Government endorsing the quantum industry, endorsing D Wave, endorsing D Wave's annealing end gate model approaches to quantum computing and saying these are important technologies to the U.S. government and broadly to the United States.
- [35:02]
Kelly Evans
How much. How do they decide how much each company gets? Did they hand it out equally? Is there anyone that you think should have gotten more or shouldn't have gotten anything at all?
- [35:10]
Alan Barrett
Well, there was a broad announcement where companies could propose projects to the US Government. That's exactly what we did. We made a proposal. We identified what we think the cost of this work would be. They thoroughly evaluated it and concluded that this was a very worthwhile project and agreed to move forward with US progress into the process.
- [35:35]
Kelly Evans
I've heard quantum computing described as AI on steroids. I've heard this was going back years ago, that if quantum ever happened, it would break bitcoin. What is quantum and what does it actually do?
- [35:46]
Alan Barrett
Yeah, well, quantum computing is just using quantum mechanical effects to solve hard computational problems better and faster than they can be solved classically. So, for example, we announced about a year ago that with our annealing quantum computers, we are able to compute properties of materials that it would take nearly a million years to compute classically. We did it in 20 minutes. And this is really important because this allows for, you know, new materials design and discovery. You don't have to fabricate these new materials in order to understand their properties. You can do it it computationally.
- [36:30]
Kelly Evans
It's fascinating. Makes me think of rare earths, you know, areas where, hey, it would, it would be nice if we could come up with something and not rely on, say, a place like China. Speaking of China, where are they in the quantum race, if we should call it that?
- [36:45]
Alan Barrett
Well, I wish I knew. What we do know is that the Chinese government is making a very significant investment in quantum computing, north of $10 billion. But there's not a lot of information coming out with respect to exactly how that money is being used and the progress that they are making.
- [37:07]
Kelly Evans
Interesting. And so again, from the US Point of view, then they might want to make sure that our quantum industry is going to be successful in competition with that.
- [37:17]
Alan Barrett
We absolutely want to and need to be the leaders in quantum computing. And I think that's program from the Department of Commerce through the CHIPS effort is a great step in that direction.
- [37:28]
Kelly Evans
Alan, thank you so much for answering all of these questions and explaining it, breaking it all down. Thanks. We really appreciate it.
- [37:34]
Alan Barrett
Pleasure. Thank you.
- [37:34]
Kelly Evans
Alan Barrett from D Wave. Coming up, is the housing market on a knife's Edge mortgage rates are at their highest since July of 25. Backing off a little bit today. Toll Brothers reporting strong earnings but light third quarter guidance. And today housing data beat estimates but showed some single family weakness. We'll get a real estate reality check with Ryan Serhan next. Housing appearing somewhat resilient in the face of economic uncertainty and rising mortgage rates starts falling less than expected in April while building permits more than doubled. Forecasts. But dig a little deeper and you'll find that strength in multifamily economy offset weakness in single family starts which actually fell 9% from the previous month. What does it all say about the health of the spring housing market? Let's ask Ryan Sirhant. He's the founder and CEO of Sirhant, executive producer of real estate show Owning Manhattan. Ryan, it's great to have you back. I picked up on some interesting trends in your notes where you're saying we are actually seeing strong increases in markets like New Jersey, Miami. Buyers you think are actually starting to reenter the market here, even nationally. Do you think that's right?
- [38:42]
Movie Trailer Narrator
Right.
- [38:44]
Ryan Serhant
Absolutely. That's why they were in my, in my notes. I think we have a tale of, of, of two housing markets right now. We don't just have one housing market. And housing isn't just houses anymore. Right. It's, it's economics, it's politics, its identity, all in one. But market number one is the top 10%. And luxury is driven by wealth creation and asset allocation and a little dash of lifestyle. The market it number two is literally everybody else, which is driven by monthly payments. 1 in 5 home buying age Americans right now don't think homeownership is in the cards for them. That drives lack of inventory. That drives the idea that people shouldn't sell because there might not be buyers. That puts a lot of pressure on the system. And remember, people don't love their homes who aren't coming to market.
- [39:33]
Podcast/Promo Announcer
Right.
- [39:33]
Ryan Serhant
They love their, their mortgages. But what's happening is people can't wait anymore. Even if rates are creeping up, there's the fear that they're going to become higher. And so if you don't act now, you might pay too much in that monthly payment later. And there's a little seasonality. People want to get things done before the summer. Homebuilders like Toll are building as fast as they possibly can. And again, I've said this before on this program. I don't believe there's a housing crisis. There are houses out there. It's all about affordability. You fix affordability you fix housing, you fix a lot of things.
- [40:06]
Kelly Evans
And it's, you know, if I were wearing my Federal Reserve hat, they've never asked me to, but if I did. What you just said about people anticipating that rates might go up is super interesting psychologically. That it's consumers, you and I would both think, and you know, you run the numbers, 6.7% mortgage, you know, that's a horrible time to buy a house. Well, it's better than if it's going to be seven. And that's the first time I've heard someone say that. That mentality is starting to creep in.
- [40:31]
Ryan Serhant
Yeah, listen, again, the two housing markets that we exist in right now, people don't buy 10 or $20 million apartments because of rates or because taxes go up. They buy because the market they're looking to purchase in remains an incredibly powerful city, an incredibly powerful market where they believe that there's asset protection. Everybody else.
- [40:53]
Alan Barrett
Right.
- [40:53]
Ryan Serhant
Is focused on that, on that monthly payment. And because now we've seen this interest rate cycle move up, up, move down and move back up again, there is a very real fear that we could get up into a 30 year fix that is in the mid sevens to high sevens. We were there not long ago. And if you're going to be pushed to make a purchase on the same property where you still see price appreciation because we just don't have the inventory, you're going to pay more per month on the same asset than you would if you had just acted a little bit quicker. So that's why you're seeing markets like New Jersey. We just opened certain across California. We opened San Diego, Orange County, Beverly Hills, San Francisco and Tahoe on the same day and survived. And we're seeing the same thing. People are just moving because waiting is more expensive.
- [41:39]
Kelly Evans
Well, at some point your life changes. It's been six years now of higher rates or maybe a little bit less Luxury market that that you say is 4 million plus. It's up 4% year to date. Trophy market, that's 10 million plus having its strongest start since 2006, up 30% over the past year. Here is politics playing a role in that
- [41:59]
Greg Ip
a little bit.
- [42:01]
Ryan Serhant
Remember, a big part of this is also consumer confidence. And if you can't anticipate the future because you don't know what's going to happen, what policy is going to be said? Are you going to have a higher annual payment in New York City because of a pied a tear tax or are you going to be paying less tax because your job is going to move you to Florida, et cetera, where's a great place to put your money. It's still real estate. Real estate is still one of the greatest and safest is not the safest, but one of the safest asset creators the world has ever known. And that ultra luxury buyer that we're talking about isn't reacting to mortgage rates. They're not necessarily even reacting to increase in individual taxes. Like I mentioned, the way the first time homebuyer is, they have a different psychology and they, they operate within different economics. Economics. And it works.
- [42:51]
Kelly Evans
It's true. I was going to say it's, it's less expensive to maintain a stock portfolio than one of these houses. But that's a story for another time. Ryan, thanks very much for today. Appreciate it. Good to see you again. Ryan Sirhant of Sirhant. Coming up, this company is walking back some of its tariff price hikes after telling CNBC its consumer is suffering with higher costs. The shares are higher 2% today, but down 45% in the past three months. Will those price cuts work? That's next. President Trump, are there any assurances from
- [43:39]
Greg Ip
registered chains that they'll have these savings
- [43:42]
Alan Barrett
down on the consumers?
- [43:43]
Kelly Evans
Well, let's ask Kroger about that.
- [43:45]
Alan Barrett
Come on. That's a very good question.
- [43:47]
Kelly Evans
You have the biggest right here.
- [43:49]
Kroger CEO
Yeah, we're actually right in the middle of doing that at the moment. So we're concerned about the cost of living. It makes a big difference when you get your pricing right. And we certainly are interested in ensuring that all our customers right across the country are paying the right price.
- [44:07]
Greg Ip
Price.
- [44:08]
Kelly Evans
That was Kroger CEO put on the spot at the White House today discussing their push to start lowering grocery prices. It comes as rival Wal mart is falling about 7% today on disappointing guidance. Wal Mart CFO telling CNBC tax returns may have muted some of the impact of higher gas prices in the first quarter, but it could show up in the current quarter and beyond. Let's bring in CNBC retail reporter Gabrielle Fon Rouge. So we can kind of, there's kind of a narrative forming here around Kroger Walmart and and is can I call it Elf, Elf Beauty. Elf Beauty, which is also doing some price cuts. That was our mystery chart. But Wal Mart is known for kind of leading the way on low prices. We are listening to what it says. For that reason, Kroger is clearly trying to play some catch up all across the industry. This appears to be a place where retail is shifting to say maybe the consumer can't handle this anymore.
- [44:56]
Gabrielle Fon Rouge
Yeah, it's an interesting point because we had heard so much about price increases related to tariffs and the big question is like how long can the consumer actually sustain this? Wal Mart is pretty well positioned. They did say today that they do expect potentially some price inflation in the second half when higher gas prices start to impact their suppliers. But they are better positioned than Kroger and the others. What they are seeing is, you know, what we're seeing from them is with their guidance you're expecting a little bit more weakness from the consumer. But they are benefiting from that as much as they are being harmed from it. What they told us that it was the strongest transaction growth in the past, you know, and at least, least 6/4 this quarter that we just saw best share growth in five years. That's because those higher income shoppers are looking for value and they're going to Wal Mart.
- [45:36]
Kelly Evans
And so what are they there? They're cautioning though that I guess starting from now that they're middle to lower end consumers a little bit out of steam.
- [45:46]
Gabrielle Fon Rouge
Yeah, that's what they told us today. You know that you've already had the K shaped economy showing up at Wal Mart. These higher income consumers have insulated it from these economic shocks that we've been seeing. But they are now starting to see a wider divergence in spending between the higher middle and lower. And that of course is going to end up hitting their sales.
- [46:01]
Kelly Evans
Kroger, do you think they could, could realistically cut prices enough? I guess they're not really trying to compete with Wal Mart per se, but could it help get people back in the stores?
- [46:10]
Gabrielle Fon Rouge
I mean that's the top of mind for everybody. I mean high, middle, low, everybody wants lower prices. I mean Kroger and Wal Mart do compete. Wal Mart is the largest grocer in the United States and Kroger is constantly trying to compete with Walmart and it's very tough to compete with them on price, especially when it comes to food.
- [46:23]
Kelly Evans
Tell me what's going on Elf.
- [46:25]
Gabrielle Fon Rouge
So Elf Beauty is a really interesting company that's a drugstore makeup brand. They are known for creating dupes, low priced alternatives to high premium beauty products. They've been on a huge growth story and they what they, you know, they have almost their entire supply chain In China, about 70%. That's down from nearly 100% a few years ago. So they were crushed by tariffs in August. They reduced, they raised, raised prices by a dollar across their entire assortment. And now I spoke with the CEO yesterday and he told me that they tested out, they saw units go negative, right. Which they expected. But then that really ramped up over the last few quarters. And it's concerning, right, because you're not getting any more organic growth. So they tested out one of their products. They dropped it in price, this Halo skin tent, which is a dupe of a premium product. They dropped it from $18 to $14. So a 40% lift in unit sales.
- [47:13]
Greg Ip
Sales.
- [47:13]
Gabrielle Fon Rouge
And now they're going to be extending that.
- [47:15]
Kelly Evans
I wonder if it's a sign of things to come. Maybe we're going to tackle this inflation problem or maybe the consumer is just crying uncle. Gabby, thanks. Really appreciate it. You can read more of her coverage. For those full stories, go to cnbc.com that's it for us. Thanks for watching the Exchange. I'll join Brian Sullivan for Power Lunch 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.
- [47:43]
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