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Warsh sworn in as Fed Chair, OpenAI’s IPO Plans, “Chip mania” still intact? 5/22/26
00:44:08
Former Fed Governor Larry Lindsey gives his take on what a Kevin Warsh-led Fed will look like. Redpoint Ventures’ Managing Director and OpenAI investor Erica Brescia joins Kelly on the AI startup’s path to the public market. And Jeff Kilburg is sticking with Intel despite the stock’s meteoric rise.
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- [00:00]
A
You're listening to the Exchange. Here's today's show. Thank you, Scott. A new Fed chair, a Dow record high and some new giants in the market. Welcome to the Exchange. I'm Kelly Evans. We're extending yesterday's gains with the Dow touching another record high. The S and P on track for eight straight weeks of gains, yields falling a bit, but still elevated after a volatile week. You can see there kind of the up and down move we've seen in yields. And that's where we'll begin today. Rates will play a big role in the Fed's next move, a move that will come under new Fed chair Kevin Warsh, who was just sworn in last hour. Megan Casella was in the room and joins us with more of the highlights. And the market, I guess, Meghan, we could say broadly saw no reason to halt this rally that we look to be going out on today. In fact, didn't the president mention that?
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B
He sure did. He said, you know, the stock market is up 600 points at the time before he walked out. And he said, you know, Kevin, that means that they like you. So, Kelly, we had all the pomp and circumstance here in the last hour or so for this ceremony at the White House, the first one held here at the White House for a Fed chair swearing in in almost 40 years, since it was Ronald Reagan hosting Alan GreenSpan back in 1987. And there was a lot of discussion leading up to this about the optics of holding it here, especially amid so many questions and concerns right now about Fed independence and all that has happened between President Trump and Jerome Powell over the past year or so. But the president, again, maybe with an eye on the markets, really sort of addressed that head on in talking about the Fed's independence. Here's what he said.
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C
I want Kevin to be totally independent.
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D
I want him to be independent and
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C
just do a great job. Don't look at me, don't look at anybody. Just do your own thing and do a great job.
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B
Warsh then when he spoke, also said that he would lead the Fed with independence and resolve. And then he spoke about the kind of central bank that he will lead. Take a listen.
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D
I will lead a reform oriented Federal Reserve learning from past successes and mistakes, both escaping static frameworks and models and upholding clear standards of integrity and performance.
- [02:11]
B
And Kelly, I'll tell you, just from being in the room there, it was a crowded room and a very appreciative crowd, I would say a lot of applause, a lot of laughter for both the president and Kevin Warsh. There when they first came out, there was a long standing ovation for Warsh and the President said, you know, I thought that was for me. Turns out that's for you, Kevin. So a lot of warm words exchanged here. It was was sort of a who's who of political figures, especially high ranking Republicans, some former politicians, a lot of the cabinet, two Supreme Court Justices, Clarence Thomas and Brett Kavanaugh, but also a number of business leaders, Kelly, Dave Ricks of Eli Lilly, Mike Worth of chevron, Dina Powell McCormick of Matt. So all there to sort of welcome this new Fed chair and this new era for the Federal Reserve?
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A
Absolutely. I saw that Becky was there as well. That was great that she got to pop on and again I didn't realize until, you know, hearing it. Doing this at the White House is unusual. It hasn't happened in 40 years. We've got that wash also faces the highest 10 year yields upon kind of taking office than anybody has since GreenSpan back in 1987. So it's just interesting the same time the President is saying do your own thing, you know, why, why have it there then? Where do they usually have it? At the Fed.
- [03:17]
B
They often have it at the Fed. There have been some at the Eisenhower Executive Office Building which is right across the street. So they've had it in different places. I mean the President has also often attended even when it's the Federal Reserve. So it's not completely unheard of that there is of course some mixing between the two. But having it here, the White House told me in a statement earlier this morning that it was according to it was done accordingly because they think this is such a historic moment that they're finally, the White House says bringing in this new era of, you know, they think good decision making at the Federal Reserve and so they wanted to honor Warsh by doing it here. You have to think Warsh might have had some say in that as well. Questions out there about that. But it is, it's unusual and yet they're still going to take great steps to say there is going to be independence here as well.
- [03:59]
A
All right. And we'll talk more about what was said, what his leadership might mean in practice. Megan, thanks for now. Appreciate it. Megan Costello, our next guest thinks the Fed's next move will be to tighten, but he says that doesn't necessarily mean rate hikes. Here to explain is former Fed governor and former NSC director Larry Lindsey. He is now CEO of the Lindsey Group. Larry, it's been a while. It's good to see you.
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D
Welcome Good to see you. Glad to be here.
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A
You know, I'm trying, you know, Stan Druckenmiller is there, Gary Kozak, if, if any of that, can you nudge them, if any of them would like to come and share some reflections about that. But I know people want Warsh to have his moment in the limelight. What do you think his first steps are going to be as Fed chair?
- [04:41]
D
Well, he's confronting an accelerating inflation situation. The last 12 months we had inflation of 3 to annualized for the last six months it was 3, 7 and annualized for the last three months it was 4 4. So you have an accelerating trajectory and that's one thing you really don't want to see. So I think the new chairman is going to have and his colleagues are going to have to do something reasonably quickly to reassure the markets about this.
- [05:18]
A
Now Joe Lavornia was on yesterday. Larry, I don't know if you caught this. He cited the exact same stat that you did, 4.4% annualized core inflation over the past three months and said as a result the Fed should hike by 100 basis points.
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D
Well, I don't think they're going to do it all at once. I think if they go the rate hike route again, it's up to the Chairman.
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E
And
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D
in the incoming data, my bet would be if you're going to get there, you're going to do 50 the rest of this year and 50 in the first half of next year.
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A
But you're saying we shouldn't rule that out?
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D
No. Well let's let me throw out a little statistic which always is helpful. The Fed's research says that the neutral Fed funds rate is real between 0.5 and 1. So let's say, let's pick the middle number, the six month number, that's 3, 7. That means the neutral fed funds rate is between 42 and 4, 7. We're a long way from there. So you need at least 50bps in order to get to the lower bound of neutral and need 100 bips to get to more the higher bound of neutral. And remember, neutral it means just that. It means you're not accelerating inflation and you're not decelerating inflation. So there has to be some increase in Fed funds.
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A
Although you also think his first move to tighten is going to be on the balance sheet side of the equation, is that right?
- [07:08]
D
Well, he's. We'll see. Kevin is a very persuasive guy. He's just said he wants to lead a reform oriented Fed. So good Luck to him. But I think in the end when he looks at the pros and cons of raising the fed funds rate or tightening the balance sheet, selling off the balance sheet, he'll find that going the traditional route of using fed funds rate is going to be the way to start. I don't know if in this environment it's a good idea to start off with something new and radical.
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A
Do you think these price pressures are transitory, Larry?
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D
Some of them are, I'm sure, but, but you know, the numbers I gave were the core PCE deflator. So the PC deflator generally runs below CPI and it was core. So it took out the effects of oil and food. Well, you know, oil is probably the biggest transitory factor if in fact there is transitory factors out there. So I think you do have underlying inflation in the economy and so the
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A
economy is running too hot. We do have high deficits. You know, we have a roaring stock market. So does the Fed need to slow the economy in other words?
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D
Well, unfortunately my profession doesn't like to admit it, but our basic resolve conclusion is that the way to bring inflation down is to cause a recession now or at least slow the economy. Hopefully he can do it in a way that that doesn't happen. But we not only have all the things you mentioned, the deficit, a roaring stock market which helps consumption because of the wealth effect, but we also have roaring investment. We have, you know, data centers going up all around the country. We have a very investment oriented economic mix right now. So and just one other thing about rates, the whole world has high rates right now and they really, they face the same dilemma. So I don't think it's unique to the U.S. economy. And you know, when you have high rates just about everywhere, the odds that it is transitory are go down quite a bit.
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A
And finally Larry, on this question or his statement of being a reform oriented Fed, he made a passing reference to something to the effect of outdated statistical models or stale statistical models. What might something more innovative or forward looking be when it comes to kind of what the Fed's watching for its next move?
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D
Well, I think that's going to be a matter of discussion. I don't think he's coming in with any prejudgments about what that is.
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C
And
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D
you know, let's face it, they haven't done a good job in their forecasts. I've made that point before on your show, Kelly. And they have to relook at how they go about calibrating their models, what they look at part of their problem is that everyone there went to. Not everyone. Almost everyone there on the staff and even on the board of governors went to the same handful of graduate schools. And you really need more perspective on the economy and not just economic perspectives. You know, it'd be important to have more real world perspectives of what's going on. So I think that's the kind of change they need a much broader vision than what they've had.
- [11:25]
A
He mentioned Greenspan a couple of times and Greenspan was famous for his kind of cryptic remarks, you know, often would prove, you know, quite with force in hindsight. He had a lot of foresight, but at the time no one was really sure exactly what he was saying. Do you think war would lead the Fed towards communicating less either in his own remarks, with fewer press conferences in the way in which the amount of leash that other Fed members are given to speak with the dot plots, with any of those tools, do you expect him to pull back on that?
- [12:01]
D
Well, Kevin has certainly, excuse me, Chairman Warsh has certainly said that's his intent here. And, and I got to believe him. I getting from here to there is a little bit harder than might seem to be the case because you not only have to discipline yourself not to speak so much, but you've got colleagues and you know, there's no rule in the Federal Reserve act that people other than the chairman can't speak. Now, my good friend who was chair when I was governor, Alan Greenspan, had such a rule and if you spoke out of turn, he came down on you, you know, pretty hard. So I think it's going to take a while for Kevin to really shut down the amount of the cacophony really of views that are out there and
- [13:05]
A
one of whose will now be former Fed Chair Powell's, which is, you know, that'll, that'll be an unusual. I don't know if the market will give his views, you know, more credence than, than they necessarily deserve. It's just one member of the Fed now, but still that contract. We are going to hear from Powell directly
- [13:24]
D
perhaps. You know, I think he has every right to speak. Obviously, it's the first time since
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C
oh
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D
my God, Eccles, who left the chairmanship and stayed on as a governor. It's kind of an awkward thing to do to be there and not be in charge. You know, there's issues of deference and how you deal with other governors and what have you. So I really don't know. I think they probably get along personally very well. I Don't think there's animus there at all. So, you know, we'll see. Actually, the former chairman may actually be an ally of Wash in, in trying to tone down the amount of noise that comes out of the Fed.
- [14:21]
A
Fascinating. And again, leaving the door open to 50 or more points of rate hikes given what the data is doing now. It's interesting to hear your perspective. Larry, thanks for making the time.
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D
It's my pleasure. Thank you.
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A
And we like the beard. Larry Lindsey with the Lindsey. Good.
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D
I'm a gray beard.
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A
A four year high for gasoline prices meantime, which are hitting $4.55 a gallon as we head into the Memorial Day weekend. And we saw some fallout with consumer sentiment sinking to a new record low today. So when should we expect some relief? Pippa Stevens is here with a closer look. Pippa?
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F
Hey, Kelly. With the national average hovering around a four year high, Americans have already spent an extra $40 billion on fuel war began, which translates to about 300 extra dollars per household. That's according to Brown University. But if we look across regions and refined petroleum products as well, Citi estimates the combined total is more in the range of $2 trillion in extra spending since the start of the war began on oil and oil products. Now, if and when there is a finalized deal between the US And Iran, we will no doubt see a very large drop in oil. But it could be a long time before we see the pre hormuz $60 level. And the big reason is that inventories will need to be refilled following rapid worldwide depletion. Now, new data shows that here in the US stockpiles fell by a record 17.78 million barrels last week, including a 9.9 million barrel draw from the Strategic Petroleum Reserve. Now, US production has not meaningfully increased and exports have surged, meaning much of that oil is getting pulled from storage and and is hitting the global markets. Now US Gasoline inventories are drawing at an even faster rate, down for a 14th straight week and now below the five year average. And distilled inventories, which includes diesel, those are now at the lowest level since 2003.
- [16:15]
A
All the more reason why it could be higher for longer. Pippa, as you say, Pippa Stevens, thanks. Coming up, we'll speak with an open air investor, Redpoint Ventures, about OpenAI's race to go public speaking. So many IPOs, big ones waiting in the wings. Plus stocks ending the week on a high note. The Dow hitting a record high coming off its first record close since February. The S and P on pace for its first eight week win streak in more than two years. What'll it take to keep the rally going? That's ahead on the Exchange.
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C
This is the Exchange on cnbc.
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A
Welcome back. Open Air gearing up for its IPO with sources telling CNBC the company could file confidentially as soon as today and target a public debut around September. Wall street estimates the IPO valuation could exceed $1 trillion, making it one of the biggest debuts in history at that level. In fact, it would make Open air the world's 14th largest company by market cap, just behind Berkshire and ahead of Eli Lilly. For more on the setup and what this means for investors, Erica Brescia is a managing director at redpoint Ventures and they're an Open Air investor. So, Erica, I imagine you guys stand to do quite well. I mean, well, listen, not to get too much into it, but like, was this a recent investment or a long time ago?
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G
Somewhere along the way, I think, you know, a lot of venture capital firms now have investments in OpenAI and Anthropic. We weren't as early as we would have liked to be and we weren't as late as somewhere either.
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A
Very well said. Okay. So. And we talk a lot about them and their size. But then also here comes Anthropic and here comes SpaceX. And so these are companies that I guess the whole public now wishes they could have gotten their hands on a little bit sooner, right?
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G
I mean, I would think so. But I'm glad that we are starting to see companies come to market and retail investors have an opportunity to participate in one of the biggest technology transitions of our lifetime. The only way to ride that wave previously was maybe via chips, maybe via energy. You know, folks have certainly done spectacularly well there and will continue to do well. But I think it's great to have these companies coming into the public markets, building the discipline of a public market company and also giving retail investors the opportunity to participate. It's still very early days in a. I think that's easy to forget. And there is so much opportunity to come and this gives that opportunity to more than, you know, the private markets alone.
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A
Remind me, are we going to get what do we know about their financials now and what is the confidential IPO filing going to tell us if anything?
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G
Well, I can't say anything about the confidential IPO filing, but I know that they just reported that they did about 5.7 billion in revenue last quarter. That's actually ahead of Anthropic, which we all know is growing at a tear. This is an absolutely Monster business. So is Anthropic. Together I think they have something like 89% of the market today. So I think we'll get a little more insight into projections of what's to come and how that market's going to continue to evolve. But I think it'll be exciting news and information for everyone and it's great to see it getting out to the world at some point in time. Obviously this is a confidential filing and the specific IPO timing is still tbd. Sam has said he's going to wait until the timing is right. This just gives them the option to do so. So it's great that, that they'll have that flexibility on the table and then the company will make the best decision in terms of when, what timing makes sense. And I'm sure some of the other IPOs in the market and how they do will have some impact on that.
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A
Yeah, I mean, your point is well taken that their revenue is actually maybe a little above anthropic for the most recent quarter. But what about their losses?
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G
Look, it takes a substantial amount of capital to build out these data centers and you have to buy several years ahead of demand because it takes time, even at our increased speed, to build out these colossal data centers, the likes of which we've never seen before, bring them online. There are supply chain and energy challenges along the way that need to be solved. And so these companies are having to build three or four years out ahead of demand. And that's incredibly capital intensive. I think we're going to see that level of losses, you know, for years to come as we continue to build out the infrastructure that we need to actually support the diffusion of AI into the world. You know, we're still in the early days in enterprise, let alone in the medical community and pharma. Right. We have barely seen AI scratch the surface in robotics and moving AI into the physical world. So there's still a lot of usage to come. And it costs money to build the infrastructure ahead of time to support that.
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A
Sure. Although it's still jarring to go from a situation where I think it was in January, Sebastian Malaby published that piece of the New York Times warning, open I could literally go bankrupt. He said they could probably ultimately end up in the hands of Microsoft or another big tech player. Because if you compare them with Google, for instance, who has all of these other business avenues, they can just kind of integrate Gemini into their services. And that's how I as a user experience that every day I stopped going to chat GPT. So here comes a mega valuation for a company that has been publicly questioned about its capacity to, to kind of make a go forward business of it as recently as six months ago.
- [21:53]
G
Look, I think the ambition and aggression with which these companies are executing, especially when you look at, you know, not just OpenAI but Anthropic and, and Elon's, you know, now rolled up companies like the competition is fierce and that requires them to make some variable bets and again raise enormous amounts of capital in order to secure their long term future. And it is a risky game and retail investors will have an opportunity to decide how they want to think about that risk. But I think it's necessary. I certainly don't see bankruptcy on the horizon. And to your point about Google, I mean, look, they've been doing some great things with the Gemini models. Of course you might have given up Chat GPT I still use, I use chatgpt and cloud every single day and every aspect of my work. So I think, you know, there's, there's a broad range of ways that people are tapping into AI across these different companies and we'll continue to see that and we'll continue to see open source models proliferate as well. I think the, the landscape is going to get a lot more interesting, but there's still plenty of opportunity for OpenAI and Anthropic to continue on these incredible trajectories.
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A
Quickly, Erica, before you go, are you guys in Anthropic or Space X?
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E
SpaceX?
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G
We're in anthropic, not Space X.
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H
Okay.
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A
All right then. I was going to play. Would you rather. So it sounds like an Anthropic space. Open air. Yes. Space X tbd. Erica, appreciate your time. Thanks so much today. Eric joining us there from Redpoint Ventures. We've got some more breaking news out of Washington. Let's get back to Megan Costello at the White House. Megan?
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B
Kelly, we are just learning that Tulsi Gabbard is resigning from her position as Director of National Intelligence. Our colleagues at Ms. Now have confirmed this news, according to a White House official and a senior administration official. The White House official saying that Gabbard is resigning to support her husband as he battles a rare form of bone cancer. Now, Kelly, no immediate news here on who will be taking her place, but Gabbard had been taking something of a backseat role in recent months, especially with the Iran war. She is now the fourth official to be leaving the Cabinet just in the last three months or so, following Kristi Noem at dhs, Lori Chavez, dreamer at the Department of Labor and Pam Bondi at the Justice Department. So after a remarkably stable first year, year plus in Trump's cabinet, now the fourth official leaving just in the last three months. Kelly.
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A
All right, Meghan, thanks for that. Appreciate it. Megan casella, Coming up, car wash businesses are cleaning up thanks to new tax laws from the administration. We'll tell you who's benefiting and what it means for the real estate market. That's next. Look at that all time high for the Dow today, up more than 500 points. 540 used to sometimes be in a situation of geopolitical conflict. Traders wouldn't want to be long into a long weekend, but seems to be the opposite. If anything today no one wants to miss maybe the good news if that is coming. S and P500 up 800 10. Similar for the NASDAQ, small caps up 1.2. By the way, eight week win streak for the S and P, that's its first in two and a half years. Here are some of the other movers we're watching. Dell and HP Inc. Up double digits on the back of Lenovo's blowout earnings report. There's growing optimism around AI driven PC demand, giving all of these shares a boost ahead of their earnings next week. Week best day in two years for HBQ up 13%. Dell up 16% to an all time high. And Generac getting an upgrade to buy at Jefferies. Analysts raising their price target to 302, up from 239. It's currently around 268. They're citing growth opportunities tied to, you guessed it, data center demand. And finally, Estee Lauder and Pooch brands going in opposite directions after the company's terminated merger discussions that had been underway since March. And that's giving estee Lauder a 10% pop for its best day since last June. Now here's a real estate play you may not have heard before. Car washes. Thanks to new tax laws, investors are apparently cleaning up. Diana Olek joins us to explain. And this week's property play. Diana?
- [26:14]
H
Well, Kelly, to be clear, this is not about the car wash businesses themselves, but about the property properties that they sit on and lease. It's suddenly a strong real estate play because of new tax benefits. The main driver behind the car wash play is 100% bonus depreciation benefits that investors can receive in the first year under the tax laws enacted during the Trump administration. So here goes the math. Are you ready? Say you buy the property for $2 million and you finance it with a $1.4 million mortgage. So that's 6, $600,000 in equity you've invested, but that's potentially 2 million in tax write offs during year one through that bonus depreciation provision. So if you structure it properly, that means an investor may receive deductions equal to approximately 333% of their original equity investment. So for investors, they are essentially getting the property for free. And at the same time, the car wash business itself has actually changed a lot over the last decade. I spoke with Camille Renshaw, a broker in the space, and she told me the industry has shifted from mostly cash based mom and pop operations to highly digitized businesses with license plate recognition, app based payments and recurring monthly subscription models that create much more predictable cash flow. So private equity likes that a lot. They're investing in the car wash businesses and then high net worth. Individual investors and family offices are investing in the real estate. There's a lot more on this if you want to see the math. Again, it is all in the Property Play newsletter. Go to it cnbc.com property player use that QR code.
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A
So again, it's not because I, over the years I've actually heard quite a lot of people who invest in car washes. There's Mr. Car Wash. This isn't about the car wash business model itself. No.
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H
But the car wash business is getting better. It's getting, you know, there's been a lot of mergers within it. It's getting much more high tech. And so that makes it more attractive to big invest investors. And then the real estate underneath is attractive to the individual investors because they know that there are big investors owning the businesses so they don't have to worry about the cash flow.
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F
Hmm.
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A
All right, Diana, thank you. For more you can check out Property Play. Diana Olik, thank you so much. Let's get back over to Pippa Stevens now for the CNBC news update. Hi, Pippa.
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F
Hey, Kelly. Billions of dollars in crypto transactions have flowed through the crypto exchange Binance, the network's financing Iran's regime. That's according to the Wall Street Journal, which says that an Iranian financier made $850 million in transactions on Binance. Despite multiple internal flags on the activity, his account remained open for at least 15 months. A Binance spokesperson told the Journal that Binance has a zero tolerance policy for illicit activity. Finance CEO CZ was pardoned last year by President Trump after being being convicted on money laundering charges. New details in the sudden death of NASCAR champion Kyle Busch. Sources tell the AP that Bush was testing a Racing simulator on Wednesday when he became unresponsive and was rushed to a hospital in Charlotte, North Carolina. Two time NASCAR champion died yesterday at the age of 41 and the oil rich province of Alberta will hold a non binding vote this fall on whether its residents want to remain part of the country or hold another referendum to secede. Recent polls show that up to 30% of Albertans vote and would vote in favor of seceding. Kelly, back to you.
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A
Just I just wanted to say something about Kyle Busch, Pippa, because we were big fans in the household for a lot of years and it was came out of nowhere. I mean he had just won I think a truck race last weekend. You know, I don't know any more about it I think than anybody else at this point. But it's so sad. He was only 4:41.
- [29:59]
F
So scary, so shocking and really devastating there for him and for his family especially.
- [30:03]
A
Exactly. We send our prayers their way for sure. Pippa, thanks. We'll be back right after this. Welcome back. There's the s and P500. It's set to close higher for the eighth straight week now. It's the longest win streak since 2023 but the gains have been far from even since the start of the Iran war. The S and P is up an impressive 8%, little more 9% now. The S and P equal weight though is essentially flat. Andrew Slimmon is senior portfolio manager at Morgan Stanley Investment Management. Andrew, welcome to you. Is that a warning sign?
- [30:44]
E
Kelly in my opinion every time I hear someone say well the breadth is bad, you know what's misleading about that is maybe the big stocks are showing the best fundamentals and if they are then they should be rewarded. So I'm not as worried about the fact that the cap weighted leading the equal weighted. What I'm really more worried about Kelly right now is what has really led since the end of the first quarter is the real speculative stocks and they are on a tear. And that to me is a warning sign that you know, the market is vulnerable to bad news that comes along when the leadership is in the very, very speculative names.
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A
Hmm. Let's talk about, I mean I don't know if you can rattle them off off the top your head. I just want to make sure that we're, you know, we know what you're.
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E
Well let me, I'll give you a perfect example. There's something called the Goldman Sachs non profitable tech index. So those are money losing tech stocks. This is not the Mag 7. It is up 38% for the quarter wow, the market's up 15. It's up again today. These are, you know, your, your, your, your real long dated tech stocks. And whenever that happens, it just tells me, you know, I'm worried about euphoria, bull markets down, euphoria. Those are the euphoria stocks. Now that index is up about 190% off the low of tariffs from the COVID low to the peak before when the Fed started raising rate in 2021, it was up 450%. But what it just tells me this magnitude of rally in these types of stocks means that the market is very vulnerable to some surprise that comes along versus in the first quarter when the market was down. But earnings were great. It was a wonderful time to buy stocks, to go through and find names that you know, were fundamentals. Earnings revisions were strong and the stocks hadn't done much.
- [32:44]
A
You know, another point maybe to kind of underpin what you're saying because you're saying, look, the speculative parts of the market where, you know, unprofitable stocks, that's been roaring lately. On the flip side, if you look at this courtesy of, of Mike Santoli over here who is pointed this out, but if you look at the equal weight consumer discretionary stocks, boy, is that going the wrong way. That's that blue line on your screen there. Again, equal weight consumer discretionary versus the S& P. Is that telling you, combined with things like weak consumer sentiment this morning, that everything outside of basically tech and speculative tech is, is, you know, is it telling the rest of the market something? Because normally the semis, those areas of leadership are still sending, you know, great signals about the broader markets. But that's also the area where we're seeing this kind of investment boom. So I don't know, you know, which of these is kind of the signal and which is the noise.
- [33:40]
E
Well, maybe, maybe there's, you know, there's an in between here, Kelly, which is you're, you're right. I mean, consumer discretionary stocks are down because some retailers are saying we're worried about higher prices, higher gas prices, about our future. So there is some question marks about their fundamentals. But, but what about financials? They all reported great numbers. Their numbers were great. The estimates went up and the stocks have gone nowhere. So if you had to commit money or you're looking for opportunities, I would say financials are a great place. I like to find stocks where the fundamentals are improving and the stocks haven't done any, that there were a lot of them in the first quarter, less so because Tech has come to life, but the financials certainly haven't. So I think that's an opportunity versus I would not go and say, well, these, you know, retail as consumer stocks have it all wrong. You know, oil prices are going to drop and they'll come roaring back. I'm not, I wouldn't make that bet.
- [34:42]
A
And what happens if we have rate hikes? As we were talking to Larry Lindsey about that, top of the hour, Joe Lavornia was saying we need a full point of hikes this week. The markets come around to a rate hike at the end of the year. Is that something that could be a stumbling block and kind of quell the euphoria in those speculative names?
- [35:01]
E
When the Fed started raising rates in 2022, that nonprofit tech index dropped 78%. Okay. Now I'm not, you know, I'm not predicting that, but I'm just saying don't lose sight of the fact that the direction of the Fed has a big impact on the stock market and especially on the most speculative side of stocks. So. Absolutely. I don't know, a lot of people will come on and tell you, Kelly, what they think. I don't know where oil prices are going. A lot of people come out and tell you. What I know is the market is a lot more vulnerable now to bad news than it was, you know, a month and a half ago.
- [35:43]
A
Well, on that note, sorry, no, but it's, look, it's a point well made. I'm going to look up that, that etf, maybe do some more digging on it. But Andrew, thanks, thanks for breaking it down. You said mag seven beneficiaries, banks, those are all areas where you think things are a little more attractive. Have a great long weekend. You too with Morgan Stanley. Coming up, software segmentation workday soars while Intuit sinks. We'll dig into those divergences and what they reveal about the software trade next. Shares of Workday are higher after beating on the top and bottom lines and raising its full year profit margin outlook, they're up 5%. Importantly, this comes after a disastrous day for Intuit. On the back of its results, Intuit plunged 20% yesterday and announced layoffs. Why are we seeing such a big divergence in the software names? Seema Modi has more in today's tech check. Seema?
- [36:42]
I
Kelly, it's a great question. I mean, Intuit did see a slowdown in TurboTax revenue year over year, which really amplified those competitive concerns. We didn't see any slippage in sales from workday and even zoom. I would point out, in fact, customer adoption is increasing. Zoom executives, citing a deal where wealth advisors are opting for customized AI workflows and summaries of calls and in some cases using Zoom for IT ticketing and CRM needs. Workday founder Anil Boosri, who returned as CEO and February, said the number of clients using agents it built more than doubled from the previous quarter, with over 4,000 using at least one. So that's a sign, Kelly, that tools being rolled out by both Workday and Zoom are receiving good feedback from existing customers. That's alleviate alleviating some of those concerns around competition from the large language models, at least in the short term. I did ask BTIG analyst Alan Berkowski, who's been conducting some of these deep channel checks around competition, and he said customers at this point are not looking to build payroll or HR software with the air labs. He adds that we're just not picking up that type of disruption risk as it relates to Workday. The question though at large is when that could change. With both OpenAI and anthropic beefing up these revenue targets and spending a great deal on poaching sales executives from software incumbents. That's a story that Kate Rooney and I have a been following very closely over the last few weeks, Kelly.
- [38:04]
A
That's true. Watch where the people go. That does tell you a lot. Just again, what was it with into it specifically? Was it the layoffs? Was it the, was it the quarter? I mean, why the outsized reaction there?
- [38:17]
I
Yeah, it was two things. One is its main tax filing system, TurboTax actually saw a deceleration in revenue year over year. So in this type of market environment, you know, investors are very sensitive to any signs of a slowdown. So I think that was one thing that sent the stock lower. And then to your other point on job cuts, 3,000 jobs, you know, one way to sort of slim and create more inefficiency across the company, as CEO Susan Gurazi told me two days ago. But the market also seeing that perhaps as a sign of weakness I would point out into it did raise its guide and yet stock fell 20% coming back a bit today.
- [38:51]
A
This is the moment you know, those who are good at the stock picking, you know, these are moments when you have to figure out which names are going to kind of navigate through this and which which are not. Seema, thanks for now. Appreciate it. Seema Modi Coming up, intel up nearly 140% since our next guest said he was a buyer last month he added more exposure to this name today, up more than 16% this week. That's our mystery chart. Send in your guesses and we'll reveal where else he's seeing opportunities. Opportunity after this. The semi ETF is up more than 4% this week despite Nvidia's earnings failing to wow investors. Those shares are down about 2% since Wednesday. But my next guest is staying bullish. Joining me now is Jeff Kilberg, founder and CEO at KKM Financial. He's also a CNBC contributor. His optimism has paid off in spades this year. Quantum, intel, IBM. Jeff, what's next? Did you hear what our guest earlier this hour said? He said too many of the nonprofitable names are acting frothy.
- [39:56]
C
Yeah. I think you could argue, Kelly, that there's been euphoria and frothiness all year. But at the end of the day, the semiconductors have provided that leadership. And here we are with so exact. That's etf. If you look at one of the bigger holdings, obviously AMD and Nvidia up 80%. So that outperformance persists. But I think you have to be very strategic, considerate. Actually, in our Mango growth ETF ticker symbol, Gary, we actually just reduced the size of AMD because it grew so much. Conversely, in our other ETF, the Essential40 ETF, we still own intel, it went from a 2.5% weight in Cali in January to 6%. So that is outsized. But we want to stick with the narrative of semiconductors because the momentum is not over, over. People are underinvested. Today's the last day of the month. You're seeing them come into semiconductors. I think the month of June, which is the last month of Q2, will continue to see investments chase.
- [40:46]
A
But the question a lot of our viewers are always asking about intel in particular, you're not selling it.
- [40:52]
E
I'm not.
- [40:52]
C
Kelly, you've been asking me since $30. Every $10 it goes up, I get asked at 90.
- [40:57]
A
But you're right, it was probably 30.
- [40:59]
C
No, fair enough. But I think if you look back and you realize that you have to let your winners run, conversely, you have to let your losers lose in this market. But we only do that in an equal weighted manner, meaning that we're not going to let a position get 10, 15% in like Nvidia, for example, at 5.5 trillion, it's a very large market, cap weighted. But we're not trimming intel yet. We have a lot of belief in the foundry business. And yes, at a forward PE, Kelly of 111, it feels like a nosebleed up here. But that's been the same narrative since $70, $80 and $100. And what we saw, and we talked about this just last week, we saw that new all time high in intel and what happened, a back and fill, and that's an old pit jargon term from Chicago, but that back and fill means the price volume, the gaps in the price volume. It went back down to 102 earlier this week. Back in filled. We saw some volume, we saw some investors come in, we added a little bit at that 102 level and here we are back at 121 looking to move higher. So I think you have to be considerate and prudent.
- [41:57]
A
I've learned that you can't just point to 100 plus, you know, P E valuation and say, see, I mean we were doing that with Netflix in like 2011. It never matter. Or more to the point, it was an indication of its incredible growth potential, which it fulfilled. IBM is your new position, is that right? You've been in the quantum names for a while. IBM, I guess is a quantum name now. It's getting $1 billion from the government.
- [42:22]
C
We bought IBM over three years ago and kind of got ridiculed because Big Blue was kind of stagnant. Right. And we bought it initially because of the cloud computing capabilities, where it was number three, number four on cloud, but now the quantum, which is really accelerating. Kelly, if you look at Rigetti, if you look at some of these other names that are really quantum focused, with that $2 billion investment, IBM was able to land a big billion of that. So that's where we get excited about IBM. And we're not saying it's the same investment as the government took in Intel. But what's interesting is that now there's a billion dollars coming in. Will it have the same trajectory? So that's why we actually we talked on CNBC Pro today. I had a trade that talked about capturing this upside because I think IBM, you're going to see more and more people go into IBM because of the ownership or the grant that just went into it from the government.
- [43:09]
A
That was our mystery chart case. People hadn't connected the dots and it is having, it's only up 16% this week, but that's its best week since 2001. So I find it endlessly amusing and kind of wonderful to see all of these old names like coming back and leading the way now. Quick, final comments.
- [43:25]
C
What's the undercurrent? Real quick Kelly yeah, all old school US blue chip names. You're seeing that reversion back to US soiled names.
- [43:33]
A
But you're is there anything that you're selling or trimming into the Memorial Day weekend here in the last couple weeks of seconds?
- [43:38]
C
We did trim amd, right. I hate taking profits on that, but we had to trim that. But we also have to be considerate of where we are on some of the other names that we bought. And we did some dumpster diving back in February. If you remember, I was on the show. We bought some of those quantum names. We're going to manage those positions.
- [43:54]
A
All right. We'll talk about that next time, Jeff.
- [43:56]
B
Thanks.
- [43:57]
A
Have a great weekend. Jeff Kilberg, Power Lunch is next. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.