The 8:30 hosts Julie Hyman, Jake Conely, and Pras Subramanian tackle the top stories of the day. Including where to invest in the AI trade besides Nvidia (NVDA), what to expect with Microsoft (MSFT) and Alphabet (GOOGL) (GOOG) earnings, and OpenAI (OPAI.PVT) buys Google chips.
Welcome to the 8:30. Here we are. It’s Fed Day. It’s alphabet and Microsoft Day. There’s so much happening, although most of it hasn’thappened yet.
It’s a big day. It’s a big day we’ve got coming up on this, on this, uh, round here. It
is a big day and in advance of that big day, um, we’re looking at futures this morning.That are not hugely changed, right, because, which is not unusual on a Fed day. It’s a bit of wait and see, a little bit of drift, a little bit of mix here this morning, but NASDAQ futures are a little bit higher. Kraus is really feeling the music this
morning. You’reing that music. I’m liking it. I hear it, yeah,
that’s a little bit of techno.
Does it usually last this long?
No, but I like it. Maybe we should just play through the whole show and energized than usual. OK, let’s talk about the Federal Reserve, OK, which is expected to make a decision today and is broadly expected to not change rates, although there does seem to be a little bit of a consensus forming that there will be some.In the Fed decision today that it could be Cleveland Fed President Beth Hammock could be Dallas Fed President Laurie Logan, maybe a little Neel Kashkari thrown in
cash action on top.
It is not expected to be a unanimous decision, and I was actually surprised as I went through some of the economists notes that.There are some who are saying, well, maybe you could get a wild card raise today, although as we know, there is always a difference between what people think the Fed should do and what they are going
to do and what they actually do. I mean this is the point that’s kept coming up. Kevin Warsh’s point.Since he came in from day 11 of those points was getting rid of forward guidance. We’re not going to get out there and signal what we’re going to do. If you truly wanted to dispel any notion of forward guidance when the market’s pricing in what a 90%, 95% shot they hold today, hike rates, get the committee to agree with you and, and to move and hike rates. The problem if you don’t hike rates.Is that what, what did we get over the last few weeks? We got several moments of Fed speak where some of the biggest players came out and said, yeah, we’ve got time to hold, we can, we can wait off for a month and do this in December. So that means that going forward, if you now hold today, everyone goes to their calendar, they circle when John Williams speaks, they circle when Phillip Jefferson speaks, and whatever those two guys say.That’s taken as gospel and you’ve now effectively lost control. Claudia Sah made this point excellently this morning when she was speaking. There’s no more we. We are committed to fighting inflation. We are not going to do forward guidance. No, no, no, I won’t, but you may. So
youknow what’s so funny about that.I was rereading this morning the quote that Kevin Warsh gave at that IMF event where he said it’s a new chapter at the Fed and we’re not in that business anymore, meaning like we don’t give guidance unless he’s doing the royal we. He’s incorrect that we are not in
kind of like I’m saying this thing, but then.We’re still gonna get forward with guidance and you guys can do it because everybody else is gonna speak, but he’s like, I’m not gonna do it. I’m just, this is my theory. I’m not gonna do it. I, me, Kevin Warsh not gonna do it on purpose. I think it’s like the other members can talk.I’m not gonna tell him what to do.
But if that’s the case, then what’s the point of making a deal about it.
has happened. It’s, it’s a take, alright, I’m having fun, right? But, but I, I think it’s interesting that, yeah, if you really felt that way, you’d be like, hey, shut, shut up. Don’t say anything. Yeah, don’t say anything. Don’t say shut up. Don’t say anything. Yes,
but I don’t, they’re not, but I don’t think you’re
think.He can do that even if he wanted to. I don’t, but don’t
you guys think it’s weird? I’m sorry. Don’t you think it’s weird that he’s like, we’re not going to do this anymore, and these three guys are like, yeah, they’re going to say we’re going to wait. Yes,
it’s weird, because it’s the way that the Fed is sortof set up.
Then it’s like, well why even say we’re not doing this anymore, you know,
maybe for him.
The point that you made is the point that Ed Yardani made in a note where he.Says Wars has 3 problems. He opposes forward guidance, but his colleagues provide it. You know, their remarks muddy the signals because he says the market should be taking signals straight from the data, and he says he risks being boxed in by expectations that he cannot rebut without issuing guidance himself. So he says, like you said.The solution to this problem is raise rates today because then you show that like you’re not you know that you’re
not beholden to what your voting members say. That’s
right. That’s right.But again unlikely to actually happen.
Maybe the most salient version of this, you know, when I’ve been thinking.This goes something along the lines of yes, all the other voting members in the FOMC can speak. They have that right to go out and go appear at the University of Chicago or at some other economics event and say whatever they want. Kevin Warsh is the only one authorized to speak on behalf of the committee.And so if you’re the one who’s not speaking and everyone else is, you’ve effectively lost control of your own narrative. Yeah, it’s
like kind of what it’s pointless now, right? Um, you know, turning back to the actual, you know, concerns, right, things that are happening, looking, looking at today, and Julie, you shared a Goldman note here about how talking about how the big concern is oil, right? If oil keeps going up, you know, if it goes above our forecasts, uh, that’s the problem, right? That means inflationary pressures could broaden and then, then they would have to.
At the same time, the Goldman folks seem pretty optimistic that inflation is going to moderate.
That’s right, but the oil would be the wild card, would be,
yes, I mean, and let’s look at the backdrop. OK. September CPI was the fastest in what, 5 months. Wholesale prices rose the most in more than 4 years, so that’s the backdrop for all this, that re-acceleration in inflation. We’ve got.PCE tomorrow our friend Joe Bruceuelis over at RSM points out as of August, PCE inflation has been above 2% for 67 straightmonths.
and 2% is their target.
So can we sit on the CPI and the PPI numbers we got that were far hotter than expected in September. So in August you get hot numbers.And you hike because the data says so because the job market is healthy and inflation is accelerating, so you hike rates.And then in September you get even hotter numbers. You get even hotter numbers, but you’re not going to hike now.People are gonna start questioning what are you actually listening to and, and is there something other than the mandate influencing your decision.
I’m gonna take the counter side to that. I think maybe what they’re saying is that there’s a lag there, right? So we hike rates. Let’s give it a couple months, see what happens instead of hiking again and again and again, then maybe you’ve overshot and you’re like, and now you’ve hiked too much when you kill the economy. So maybe that’s just my, the, the, the, the.The, the, I’m giving the benefit of the doubt. It’s, it’s,
because by December you’ll have a better view. You should have a better view of the war. Uh, we got the news this morning that the US government has been warning Middle Eastern states to prepare for a major round of strikes after the midterms. If that comes, we’ll have much more clarity in December over where that conflict sits over where oil sits.So maybe then you come back to the decision making table of let’s hike rates. So, OK,
so if you think about the two main inputs to inflation right now, one of them is oil, which I think an argument can be made and has traditionally been made that the Fed doesn’t have a big influence on that lever, right, that the that the demand for energy is somewhat inelastic, cannot
control war making.
The other big input to inflation right now, as we know, is AI, right? Memory chip prices, electricity, etc. etc. etc. there.The argument had been that even if they raise rates, this demand is here and it doesn’t matter. I think though the past few, the past month or so has sort of put that to bed, that’s right, those that those demands, that piece of demand is, you know, is reactive to what’s gone in the rates market we’ve seen that in terms of how CDSs have traded of how bonds have traded.Core weave, etc. So you know, so you could argue if they really did inflation is a choice, you know, we’ve heard Kevin Warsh say that multiple times, multiple times, and so they could tighten financial conditions around that. I take your point about the lag. I mean that is a good point, but.You know,
sometimes I have good points.
Ross makes great points. Let’s stick with the AI trade here, which Julie’s talking about the other side of this. Some numbers coming out of South Korea last night. SK Heinech there reporting its quarterly results, really blowing it out of the water, uh, reporting September quarter operating profit of.$62.5 billion US, that’s up roughly sevenfold, more than 7% above projections, an extra $45 billion in buybacks and dividends for the remainder of the fiscal year on top of what had already been announced. And here’s the key thing, management saying conventional and high bandwidth memory are sold out through 2029 and expect shortages to persist through 2030. If you were looking for a demand signal, that’s it.
But it’s not just that they said all of this, it’s what the stock is doing. That’s right, because like every quarter they do this.
That’s right.
But the stock doesn’t always go up. No, itdoes not,
right? So look what we’re looking at now.
I mean, it’s not a huge gain. It’s 7%. It’s not a huge gain by gain by SK standards, but it sort of speaks to like where we are in this moment, right? We’ve been in moments.where they’re like, I’m not impressed. America’s like, I’m not impressed. We’ve seen this before. This is, you know, maybe starting to get priced in. And now that we’ve had this big drop, it’s more maybe a little bit of a sign of relief. So it rallies, the Cosby rallies, other memories start all the
rallying, you know, the demand, the, you know, the stocks
get hit here. I mean, the stock is.Down 24% last month, not including today. So there is some, a little like I mentioned relief here from that, and, and it’s some positive news from the that, that memory sort of side of the business, and it’s not going away, and it’s both the, the, the memory for, I believe, not just the AI stuff but also the lower speed memory for other things too, uh, so that’s good, but I think it’s, I think we’ve been seeing some recent headlines that have.Been showing the AI trade is not in as horrible shape as we thought it would, it was, right? Things are getting some good stuff here and there helped a lot. That helped a lot. That changed the narrative right on
that trade backMonday.Yeah, that, that wasMonday,
only 2 days ago. Uh, so I changed narrative a little bit here and we get the SK Heinek stuff here and we’re gonna talk about some other, uh, AI related companies that are doing OK too. So maybe there’s a little bit of things aren’t as bad as we thought, uh, in the AI world.
Well, and, and what’s interesting in the memory chip trade specifically, it’s a
a different world, yeah,like the memory.Chip trade just to remind folks who maybe are not as steeped in it, like it’s historically is an extremely commoditized in chip. The semiconductor business overall is very commoditized historically. Memory chips maybe more than anything is very cyclical. They overbuild and then they fall back and you know it’s this whole cycle and so this whole rerating has been around.You know, signing longer term contracts, having more visibility than they’ve ever had before, and so SK coming out and reminding folks the demand is going to last out to this point we’re signing these long term contracts. It’s just sort of like reminds people, oh yeah, this thing is not going away tomorrow, you
know, I mean it’s kind of like imagine like a.You know, Freeport McAran train like crazy because of the commodities of the right,
nuclear and there’s so much demand for it and it’s like we’re not used to that. It’s like, no, it’s just like the steady sort of stock that just sort of does its thing and doesn’t really move anywhere, uh, it’s like, you know, an indicator of future consumption, blah blah blah, but this, it’s just nuclear stuff here with the
stocks. Samsung, by the way, reports tonight.I believe they’re the biggest memory maker in the world so that’ll also give us, you know, we’ll see if they can continue the momentum. I’ve been watching that Round Hill Memory ETF, you know, that has a bunch of these chip makers in it. It’s down 37% from its high in June. We don’t have that much history because it just started trading like in April is when it was created, um, but it’s, it’s had quite a sell-off,
right.But if you want exposure to that trade, that is one way to get it. The problem is you’re going to be very indexed to the results that come out of companies like SK, like Micron, like Samsung. To your point, we’ll get Samsung in a few hours here. With that and SK, you’ll have the two biggest memory makers in the world, pretty good picture into what this is looking like. And at the process point, if the anthropic S1 did anything.It relit the fire of what compute demand is not going anywhere, especially if you want these companies to succeed,
not just compute demand, but like that the financing is more solid than had been supposed, like when that company that is a client for so many of these suppliers has $100 billion.In cash you’re like, oh, maybe things are a little bit maybe
maybe the economics here are slightly stronger. However, I would push back on just that it doesn’t discount what we saw in the credit spreads widening this week. It doesn’t discount what we saw in the neo clouds, but if you’re at the big scale of a hyper scaler of an SK Heinix of an anthropic, things may be looking.More OK than they were two weeks ago. Yeah,
I think it was Gavin Baker was talking about, um, recently, and look, he’s a big AI bull and things like that, but he was talking about in his portfolio companies, the amount of demand for AI compute is so strong that they can’t be satiated at this point. They’re still trying, they said like they said.To rent a cluster six months ago was much cheaper than it is now. Like, it’s changed so much. So, uh, that’s bullish for SpaceX. It’s bullish for the, like you said, the hyperscalers. Um, it’s bullish for if you believe in the, the, the anthropic story and that they have a ton of cash and they’re gonna deploy it and people are, are in in enterprise is, is using more and more AI. Well, I mean.I feel like that’s this story’s evolving so quickly that things could change the next time we talk in a month, right, about this, right? So of
course in a conditions could be radically different.
Um, do you want to talk about open AI here? Let’s do it that we’re staying with these guys. So open AI also sticking with chips, now, not necessarily memory, butI think it’s a big move for OpenAI, right, to actually, you know, uh, you know, the information reporting, reporting that they’re gonna work with Google to, to make some chips, right, for AI chips for them. Uh, it’s kind of a pivot from Nvidia, which, you know, is sort of everyone’s trying to diversify away from them, you know, and, and, and also, you wanna note that OpenAI is making its own chips to it’s designing its own chips, the jalapeno, uh, jalapeno jalapeno, right, and then, you know, adding Google.Chips here is this another way of adding another stream of a way to create your own compute right with these chips. So, uh, big move here, but I mean if you’re Nvidia is a concern, right? That’s my question.
Yeah,maybe. I mean, I think they had been renting some of these Google chips and now to buy and we saw anthropic sort of that that was part of the S12 is they have been renting and now they’re going to be buying more compute, which I think is an interesting.Distinction and like part we’re entering in the cycle, but I mean the short answer to your question is yes, and maybe I should be somewhat worried, but that’s why they’re invested in all this stuff, right?
That’s why they’re investing in other AI companies.
That’s right, right, that’s right, yeah, to diversify in case that kind of thing happens. I mean
if you’re Google building out your TPUs, this is a big win. You’re going to get, you’re getting a further deal, further entrenched with a marquee client, you know, one of kind of two marquee clients you could go after.Uh, but to your point on Nvidia, this, this is what Jensen Wong’s been saying on all the earnings calls. It’s not just about chips. We’re going to be so deeply invested with so much capital coming in and out, and we’re also, we’re not just building chips. We’re gonna give you the racks, we’re gonna give you the hardware, we’re gonna give you everything.Thing the software in the software too, we want to be the bedrock layer
company. They’re a software company. They’re now a security company with this open shell product, right? So they, yes, they’re trying to, this is his point represent all parts of.
We will be the floor of the entire trade that everything else sits upon.And implicitly in that is so that we cannot be displaced by a rival like Google because their chips managed to pick off a few customers here and there.
What’sinteresting is, uh, I can bring up SpaceX, they’re like almost exclusively Nvidia, like hardcore Nvidia. They’re not going anywhere else. I note that because Oracle at Oracle World also announced that.They’re, they’re gonna be using TPUs, Google’s TPU chips, uh, through their cloud computing infrastructure. Uh, they also announced the OpenAI deal, right, with, with allowing the Open AI tools like Codex and, and chat in, in their cloud infrastructure too. So, uh, you have a lot of companies working together on these things that offer solutions, maybe 111 stop place for everything you need.In in one of these things,
yeah, but most of them are already fairly diversified. Like OpenAI already has a deal with, um, of course with Nvidia, but also with Amazon. They’re getting some of their chips from AMD. They’re, they’re designing their own chips with Broadcom, um, so like it feels like
there’s a lot of diversification within the.
It’s like the old Intel AMD wars, right, where you have like you have other competitors, not just, well, Intel was the big, the big guy for so long. Uh, now AMD has caught up a lot and actually may be surpassed in a lot of ways.I have an AMD chip at home. My, my, my game works quite well, uh, but yeah, it’s really interesting that seeing all these, the, the sort of, um, the landscape, if you will, all these companies that are sort of, you know.Investing heavily in AI and and doing stuff like their own chips, man, design your own chips is crazy. That’s what Ruben’s doing too, yeah, yeah, working with TSMC,
yeah. Pross, you, uh, you, you remember back 15 years ago when Nvidia was just known for having the best computer graphics chips on the market for video games?
you remember those, those uh staid old days.
I do. I, I’m, I’m, I’m, I’m listening to the, uh, one of the, uh, Nvidia books right now. I can’t remember the name of, of, The Thinking Machine, and they talk about how when they were saying we have to make parallel processing a thing and this guy John Carmack, who did the, uh, big game designer, uh, made some, uh, games called Virtue Fighter, like polygon-like fighting, right? And he’s like, we need to make a chip for this guy. And they did, and he’s like, this is the holy grail. He told all the, the computer fans, buy this chip, buy this chip.And it just took off from there. I mean, it’s just a crazy story, but yes, I do remember
that. Yeah, crazy to think how far that company’s come, and they are, uh, they’re lifting some other boats as well this morning, uh, in the energy sector. GE Renova and Vertive, both coming out with earnings this morning, both putting up really strong numbers, both getting a nice little bounce on their stock off the back of that, starting with GE Renova, which makes, uh, natural gas turbines, other power equipment, electrification.Equipment, their orders up 96% organically. Power orders in their power division specifically up 178% organically year on year, and most of that driven, they say, by their gas equipment, by those turbines,
a little bitdown right now, actually, a
little bit down. It’s turned around a little bit.Most of that is driven by their turbines. They’re raising their 2026 guidance to guiding for $47.5 billion 46.5 billion dollars to $47.5 billion in revenue from a previous target of $45.5 billion to $46.5 billion raising their adjusted EBITA margin target, raising their free cash flow target, saying that their gas equipment backlog.Plus slot reservations, rising from 116 to 122 gigawatts. Management guiding for 130 gigawatts of backlog by year end. That is a lot of power, and it comes back to something that I, I wrote about for Yahoo Finance this morning. James West over at Melius Research came up with an excellent note yesterday where he points out, coming off the anthropic S1, natural gas is an AI vertical.This is something that’s just going to boom, and if you go through the S1 we got from Anthropic, what do they say? We expect increased competition among users for the same natural gas supply and pipeline capacity. We might be unable to secure firm gas supply, causing sites to be delayed or abandoned. This is if you’re a GE Renova and you’re getting in on this trade, it’s an excellent signal.
We want to talk about Gnova? Should we move to?
No, we can talk about GE Renova. You take a breath. Well, so, um, electrification is also a big part of the story here. So you talked a lot about gas, but electrification is a smaller part of the business, but it is growing more quickly. Even revenue was up 51%, and they’re making an acquisition in that business. They’re buying a company called Trench Group for $9 billion. It’s high voltage power grid equipment, so.That’s been a really interesting area of the business where they have been investing and they have been expanding. So obviously that’s a big investment that they’re making today to expand iteven more.
That deal is expected to be half cash, half debt closed late 2027, so there’s a little bit of lead time there, but it’s going to be a big acquisition for them as they build out that sector. And as you point out, one of the big storylines here with AI power.Is the fact that the grid has spent 20 years in this country being uninvested, so all these companies are having to go to what we call behind the meter, where you bring your own power, build your own natural gas, or you go to a company like Chevron and you say, we’ll just contract with you directly because if we want to get in the electrical grid.We might wait 10 years and we’re not waiting 10years.
Well, and the problem is, OK, so you have a power plant, but you still have to connect to the power plant. That’s right. And so that’s part of the issue. So Vertive comes in on that front also.
That’s right. You know what’s funny about back to Vernova is, you know, they make also not just the gas turbines, they make windmill turbines.
I was going to say that businessis a little bit less bad.
It’s, it’s been unfortunately it’s becoming, it’s, it’s being impacted by all the cancellations of the wind farms and so that, that there was this, there was a multi-year backlog just to get one of these gigantic turbines, right, at these, these whatever these, these blades.And now it’s come down and now it’s the gas turbines that are that are I think 2029 to 2031 waitlists to get these. So it’s kind of a crazy business because it just takes, it’s hard to make these things,
but wind has gotten a little bit better actually this quarter. Wind revenue was up 3.6% andThe wind operations were actually profitable in the 3rd quarter,which has not been,
which is a turnaround for that company because
the backlog was coming down because people were not hopefully canceling, hopefully that goes back up. I mean, I think it’s a wind power is a nobrainer.
Well, at some point the cancellations will have to slow down, I guess.This isalso, um,
this will be a big story to watch post 28 elections. The Democrat comes into office, that business, well,
taxpayersare on the hook for cancellations though all these US projects, so some of them get paid. But
Pross, have you ever stood under one of those wind, or Julie, those like huge wind turbines?
are so unbelievably massive in real life, it’s not even fun.
No, they’re, they’regigantic, they’re gigantic and they’re like the, the height of like Empire State Building. They’re huge,they’re enormous.
I actually think they look pretty cool out on the horizon. I don’t buy the argument that they ruined the, the vista, but that’s me. Uh, turning divertive, also some good numbers coming out of that company, revenue coming in at, uh, $4.31 billion versus $3.75 billion expected, a very.Healthy beat. They’re up 61% year over year. Adjusted EPS coming in at $2.21 per share against $1.82 expected another healthy beat. Organic orders growing more than 100% year on year, raising their full year adjusted EPS guidance. All of this again, more and more Signal Vertive, of course, not the same business. They’re not really doing as much power, but they’re really heavy in the data center construction, and that business is just.In soaring, heating cooling that goes into those power management, power management, good business. It’s a great business and it’s a great business to be in. You know what? I have a buddy who’s in HVAC who has said the amount of contracts that his shop is getting for this kind of stuff for data centers has just been an explosive part of their business, and they’re really doing well because of that. I
wonder if the carriers of the world are experiencing a nice little lift here. Yeah,
yeah, yeah, carrier and um.I’m blanking on the other one that does this, uh,
a, no, no, it’s not. I talked to the CEO periodically. Train, thank you, Rachel, boom, there we go. The other one that’s been killing it in that, in by
the way area. Good band, Train, good band, great band spelled differently,
spelled differently, but in fairness, great, great band.
Can we get played out with Train, please? Play us out. You,
you sing it. You sing your prose.
Here to play us out, to cut off the latest track, Train.
Latest track. I don’t know when Train’s
last track was.
Yeah, when is, when’s the last time Train came out with music?
They’re, they’re, they’re done, but when you hear it, you know it.
Oh, of course. I mean, they’ve, they’ve got one of, one of, one of the sounds of like the nineties.
OK folks, I think that means it’s time to do. We’re leaving it there on the 90s nostalgia. We’re
send you out.
Coming up, we’re gonna have to look ahead to big earnings after closing bell and now pros for money and drops of Jupiter. Yes,
drops of Jupiter.
We’re, we’re, we’re in trouble.Welcome back to the 8:30, the second half of the 8:30, the 9 o’clock back, the,
uh, yeah, I mean, we talked about a lot of stuff happening today, big day again, uh, a lot of stuff happened before the bell, but also after the bell, uh, some two big earnings reporters are watching Alphabet and Microsoft again talking about that AI trait, again talking about their successful other businesses, right, that they have going on, believe it or not. Uh, let’s start with Alphabet.Google, right, so, um, the big story again is spending, right? We’re watching the spending here. Last quarter, uh, Alphabet had forecast cappa at $195 to $205 billion. Uh, it reported negative quarterly cash flow for the first time in its history, uh, of, of $5.9 billion burned there. I mean, that’s pretty crazy. The question is, will it keep spending as this worry builds? Yes, it’s going to. It’s going to. Uh, are we going to be cash flow negative, uh.We’ll see
Yes, I mean, I think there’s some common themes whether you’re looking at Alphabet or Microsoft. The spending number is going to be important for both of them. The cloud growth, that’s right, is going to be important for both of them. For Microsoft, we’ll be looking for Azure, right? And I think the guidance was for 45% growth in constant currency for Microsoft. That’s right. So we’ll see if they meet or exceed that. That’s where the focus is going to be.For Alphabet 2, the focus is going to be on on that part of the business.
I think the Wall Street expects a 25% growth in revenue, but cloud revenue to grow at the same sequentially, right, sequentially, not just year over year, but sequentially. That’s a huge move for cloud.
There’salso an interesting split between how these stocks have performed since their last earnings report in July. Microsoft is up 36% since then after it showed its fastest cloud growth in 4 years.Alphabet shares are down 6.3% after cash flow flipped negative. So that’s going to be something to watch of what do these earnings reports do to move either of those stocks in either of those directions because the split has been so dramatic.
Yes, and what is and that brings up another point which is the free cash flow number.
What is that going to look like?
is going to be? And does Microsoft join some of its peers?In flipping negative,
right? I mean the the ROI question is the one that we’re all asking still at this point and so part of the ROI is in the cloud business and part of it is also in the services they offer for Microsoft. That’s going to be important, right? How is CoPilott doing? How are the AI bolt-on services that they’re offering through that? How much has that boosted that business? That’s going to be.Interesting to hear about
too in the non-AI world for for alphabet, uh, talking about YouTube, they’re expecting $11.34 billion in YouTube advertising revenue, which is about a little less than 10% of overall revenue. Uh, the business was to grow 12%-ish year over year, which actually will be a decline from the last year or last quarter’s number. So it shows a kind of a maturing business even though YouTube seems to be growing, growing, growing, growing that.Advertising spend growth is maybe just plateauing a little bit there. Uh, still a nice business. I mean, we keep talking about, oh, it’s slowing down, but it’s still a good business, still growing and making money.
Well, I’ll tell you the thing about YouTube, they are becoming a serious competitor to the major streamers on content, on eyeballs. If you are, uh, Peter Rice over at uh Netflix, the new content chief there, your biggest competitor right now.It’s probably YouTube just in terms of raw eyeballs and time spent on platform. Yeah, I
think that’s true. That’s been true, um, that they’re sort of chasing YouTube at
this point. And just imagine you don’t have a massive acquisition budget. YouTube,
right?
They’re spending what, $20 billion a year or something like that. I think probably more than that, but probably more,
yeah. The other, the other thing I just point out, uh, interesting to me this morning looking at Microsoft, they’re reporting in a new two segment structure.
That’s right.
Under agents and infrastructure, one side, the other devices and consumer, so they are, we’ve known that this is two businesses for a long time, but it’s interesting to me that they are now choosing to formally kind of split those up with how they report their numbers and say, look, we really are doing two different things here and they are two different business models. The one people are going to be paying attention to by and large.Is the agents and infrastructure side to see what CapEx looks like, what the free cash flow looks like, what the Azure demand looks like. Consensus estimates from Microsoft for the full year 2027 CapE over $190 billion for Alphabet that’s expected at $202 billion for this year with.Maybe a bit of moderation in 2027, so we shall see what those numbers look like.
Yeah, and on the consumer side of the business is Xbox, and there it’s been kind of meh, right? And huge moves there. Yeah, Satya Nadella has said that Xbox could return to growth in fiscal 27, so we’ll see if they, you know, but
Julie, there’s a lot of change happening this November, when GTA
stakes, right.Can you play GTA 6 on Xbox? I
don’t even, I don’t even, it’s more of a joke. It’s more of a joke about the elections, but a lot of change happening in, in two weeks. GTA 6 GTA 6 is coming out.
Are they, forget about the midterms. They, they’ve got to be doing an all-platform release Xbox, PlayStation, console, uh, computer. Like they’ve got to be doing everything. Xbox,
it’s Xbox and PlayStation computers later. Wow,
OK, they’re, they’re not rolling out PC right away, uh, console first, huh? Yeah, and console, what’s your, what’s
your preferred, where do you play it?
Uh, I have Xbox at home, but I actually.Don’t have the newer Xbox which is required
Xbox? I think what I’ll, you know, um,
we might Nelson in ournews is veryupset with you right now.
He’s a big PlayStation guy. Uh, we might get a new Xbox or I have a PC, right? So I might just wait for a PC.
What’s the, what’s the, I mean, you’ve waited this long. You might as well wait another few months, you know what.
I might have to get back a new Xbox. What’s the,
what’s the release date on PC? Do you know off the top of your
head? They haven’t, it’s gonna be probably somewhere in sometime in January. It’s not gonna be, uh, anytime soon. Yeah, alright,
so the analysts out there, when you’re crunching your Microsoft numbers, whatever Xbox they come out with, add one,
add a plus one unit sale.
Also good for Xbox. Selling more consoles, of course people will buy consoles.
Well, I’m sure that’s one of the reasons why he’s expecting a better fiscal 2027,
and it’s not like my console can’t, it can do 4K, like 120, you know, frames per second stuff. It’s just like, no, you need the new one for the for the GTA. It’s like a way to like.I have to upgrade now, yeah, it’s a huge deal.
That frustrating. OK, well, let’s, uh, stepping out of uh out of that world for just a moment. Let’s turn to, uh, the anthropic IPO, obviously kind of one of the marquee events this week. Some reporting out of Bloomberg that JP Morgan will lead the US retail share sales for Anthropic, expecting a 15% to 20% retail allocation.Coming out of Anthropic, Goldman Sachs and Morgan Stanley got the lead left and lead right posts on that S1 as they did with SpaceX. This is now a return to form for JP Morgan, who led a lot of the retail allocation for SpaceX. Now they’re getting that role again for anthropic and notably Jamie Dimon, the head of JPMorgan.Expected to be pretty involved in the marketing, which is the same thing that happened in SpaceX, which ended up turning out really, really well for the retail demand. And so Anthropic is probably looking at this going, hey JP Morgan, you didn’t get lead left, lead right.How about that order book? How about those retail investors? Did
you help us do that a littlebit? Is this, uh, Doctor Morgan, the orthodontist? Yeah, so, um, you know, I heard you were looking to get some, uh, allocation of anthropic. We have some shares for you.
wecan, we can fill that. We could
can’t sell fill that for you.
I think he’s gonna sell.
I just don’t know what this means. He’s gonna be involved in the retail.
Well, so a lot of it was that when they, when they did the SpaceX.Uh, he was on stage,
saw that some of that, some of those clients, they
had abig events with their biggest clients. They
Musk was virtually there and they were in Jamie Down was talking to him, so I, I get that, but it’s just funny thinking about he’s gonna get involved with the retail selling of the stock. It’s like, yeah, that’s right.
Well, Anthropic doesn’t have Elon Musk, obviously, and you don’t have that religious fervor.That surrounds anything and can
you put averse can you put Dario on the stage next to Jamie Dimon in the same way you can put Musk on the
stage, obviously you can’t. I mean you can, you can,
get the same effect, right? And so that’s, you know, that’s where you do maybe lean into.Uh, Diamond’s
personality and because you think about it, I mean, who’s, who’s on the other side, right? Sam Altman, right? He’s not exactly the most charismatic figure either, or not that Musk isn’t exactly the best public speaker, but he just sort of drives this sort of everyone’s so excited to hear what he says, the crazy vision, the insane timelines. Yes, people love it. This is
also does not have that. That’s right. And, and unlike Musk, who has often, I don’t want to say he’s championed the retail trader, but he’s leaned into the real retail trading demand for his stocks.I’m, I’m expecting a lot more of this for anthropic is going to come from the private banking and wealth management unit of JPMorgan, more than the individual traders at home. They’re going to be targeting those ultra high net worth clients who say I cannot miss out on a generational opportunity to get into anthropic at the at the beginning.
You know, I was talking to my dad yesterday and told him we were covering the Anthropic S1 and he said, oh well, should you think it’s a good investment, you know, which is the same thing I asked Tory Johnson and I said, I’ll tell you what Corey said, which is it depends
they price it. I got my haircut yesterday.Barbara asked me about that, and I said, Well, we don’t know what it, what the price is like. He’s like, What do you mean? He’s like, he’s like, What do you mean there’s no price? What are you talking about? It’s like, we’re sowing the weeds, right? They’re just like, What’s the price? It’s gotta be, you know, he’s like, it can’t be $100. It’d be too much money per stock. Hope he’s not watching. Um, but that’s, but that’s how, that’s how retailing think about it a lot. $100 too much per stock. I’m like, I have no idea what it’s gonna be. We have no idea.
We have no idea. And like they’re truly no idea.
There’s no price. What do you mean?He was shocked
because nobody’s ever done an IPO like this because
we’re steeped in this. I think this is a nice segue into the next topic.
OK, I’ll do the next topic. Is that you? Yes, it’s time for this week’s ETF report and we’re going to look into exposure in private companies in this week’s ETF report. It’s brought to you by Pimco. So even if you don’t buy anthropic individually, there are a number of stocks or a number of ETFs I should say that.exposure to these private companies including anthropic and including OpenAI. Now what kind of exposure they have and the size of the exposure differs depending on what company you’re talking about here. And so some of the ETFs have a lot of exposure and some of them.Obviously don’t have as much exposure, but there’s a temahotonics and optical ETF lasers, the ticker LAZR that has, so obviously they can’t buy public stock, but they can buy through a special purpose vehicle. That’s right. They can get into some of these shares. I think that’s one of the ones that has the highest concentration in.Yeah,
there’s also a real, I, I imagine, I don’t, we can’t say there is yet, it hasn’t happened yet. I imagine there’s going to be some of that same effect you got around SpaceX, where so many retail investors wanted allocations, some were even promised allocations or shares.Didn’t get them. And so the question is going to be how else can I get any exposure to this trade and maybe the answer is an ETF.
So and just to be clear, Bloomberg did a good analysis of this. There are a bunch of ETFs that have exposure, but it’s a pretty big range of how much exposure they have. So they did an analysis and they said if you look at a $2 trillion valuation.That ETF I just mentioned, the laser one, would gain about 4.2% in fund value according to their calculations. Next is the Fidelity Select Technology portfolio, which would gain 1.6%, they say, and the BlackRock Technology Opportunities Fund 1.5%. None of the others would gain more than 1%.In fund value. So, so like this is one of those examples where like if you’re buying an ETF you’ve got to read the fine print to figure out exactly. It’s not just enough to say like I want a little anthropic. I’m going to buy this ETF. You have to look at what the actual what’s they’re
holding in that same report, the Fidelity-Contra Fund, the massive growth fund that Fidelity operates.Has a 0.35% stake in anthropic right at at at a $2 trillion valuation that’s a 0.2% gain on the in the whole fund, right? So it’s, it’s peanuts, but it has some exposure, right, right, um, but you mentioned SpaceX and you mentioned high net worth individuals, um, I spoke to a few of them and they were, they were all already invested in SpaceX via SPVs and other things like that. They’d already, they’re already in. It’s more the retail guys like you said, they’re like, how do I get in.How do I get to get in ahead of time unless you have a you are a credit investor and you have the right connections. Yes,
you’ve got to be your banker at JPMorgan who will get you that allocation.
The other way to get in via ETFs is to buy ETFs that hold perpetual futures. But again, this is a buyer beware or read the fine print of situation because perps, as they’re called, are not shares in the actual companies. They are vehicles.Tied to the value of the company. So that’s just again something for investors to be aware of. In theory they should trade in line with how these companies do, especially when they come public and how they’re valued, but they’re more opaque and you’re not getting an actual piece of an anthropic or an open AI. You’re getting a future tied to the value of thosecompanies.
That’s right. Those perps are kind of like what the Yankees are doing, right, with the Yankees.Fund that we talked about recently where it’s basically just tied to performance of the team but you don’t actually own anything of the team it’s just a futures contract based on the performance
yeah right that’s right and you also have some of the same problems that you get with futures contracts of what’s your exposure on the downside, what’s your margin look like you’ve got to think through all that very carefully if you’re gonna go with a more speculative vehicle like a perp.
Um, I do think it’s going to be really interesting going back for a moment to JPMorgan and the retail side of the trade because it’s all about how much demand there’s going to be for this thing, um, to your point about like if I can’t get in this way, do I
dosomething else? I wonder if this if this IPO will be more expensive.Accessible and there what effect that will then have, what ripple effect that will have on the ETFs that hold it either directly or indirectly.
It’ll be a bigger offering compared to SpaceX, so maybe that that’s going to help matters in terms of just sheer quantity, the amount of stock, right, like 100 billion versus 685 I think it was for SpaceX, something like that. Um, so a little, I guess a little bit more,
right, but, but a little bit more. And if you back out kind of to the macro lens here, this is something thatAvery Marquez over at Renaissance Capital said to us when we got that S1.No one’s ever IPOed a pure play generative AI company before. We have no playbook for what demand looks like, for how it’s going to price, to process point, for how it’s going to look 3 months down the road. Nobody knows. And so if you’re a retail investor, you’re trying to sort through.What’s this going to look like?
Yes, we also don’t know. One of the blank sections in the S1 was the lockup exploration. There will be the dates were on there. We know that, but we don’t know how much will expire at each date. So much like SpaceX and SpaceX, interestingly, when we saw those lock.expirations, the stock frequently went up because people then came in and bought. So we’ll see what happens this time around.
And plus, you know, the effect of if you don’t buy the IPO, it means cloud will be mad at you for not supportingmission.
the risk factors.
want to stay in tech, by the way.
for the week. IBM tried to convince us that they’re a tech company by switching. They’re listening to the NASDAQ, but guess what? They still make cars, right?
They still makecars.
Sorry, you still make cars, and the long awaited pivot to hybrids is coming. You know, CEO Mary Barras talked about this, saying that they’re coming, they’re happening, we’re working on it. We know the customers want that.Uh, and Reuters is now reporting a bit more on what we could, where we could see this technology appearing in, and it’s gonna be their, the Chevy Traverse, Buick Enclave, and GMC Acadia, three of their most popular vehicles, uh, mid-size to 33 row SUVs that, that are, you know, hugely popular amongst Americans, and those.Who are asking for the hybrid technology, not because they think it’s cool or they want more power, but it’s fuel economy. It’s that kind of, it’s that what is that what they’re, that’s what they’re looking for and the dealers have been clamoring for this for years. So, uh, we’ll probably hear about that soon, uh, from tech stalwart GM.
It’s interesting. Do you think the dollar, but you think there’s going to be demand forthis?
I think so. I think, I think we’re hearing about, if you look at the hybrid sales across the board from like the Kia and Hyundais of the world and Ford too, they’re doing quite well, doing very well in fact. So GM has been missing because they pay.Fitted hard to EVs, right? They were like, there’s no point in hybrid. There’s no point in, in a, uh, sort of a step, sort of, uh, evolution. Let’s go right to EVs. That sort of failed, right? It’s, it’s, it’s, that’s a problem right now. It’s gonna eventually get better, but not right now. So hybrids is the next
step. Yeah, this is, this is not yet the death of the internal combustion engine,
no. And GM says that we can, we can do this. We can do this very easily.
Um, what about the other cool thing that you got
to, right? You did a very cool thing yesterday, my friend,
with EVs, right? So you know, oh look, we have
the nice picture behind.
There it is. So I had the chance to drive the new Slate EV. This is the Jeff Bezos backed company called Slate that is making a 27,000 dollars-ish car. This is it. It’s called the Slate.
It’s so funny because looking at that, would you ever look at that and think that’s an electric car? No, like it looks like such a like oldschool pickup truck. That thing looks.
It’s like it deserves to be on like an oil and gas service road. Yeah,
no, and maybe it would be, right? So this is a 200 mile range car. Uh, it has, it’s, it’s, you know, it’s a, there is, like I said, $27,000. It’s, it’s basically, it only comes in one sort of look, and that’s it, uh, and it’s plastic body panels and interior is very, very minimal and spartan. I mean, we’re talking about hand cranked windows and things like that, but guess what, when I drove it, I, I expected it to be kind of cheap, feeling a little chintzy.It was super smooth. It actually drove very well, very well damped. It felt like a car that cost twice as much in terms of the ride, not necessarily the look and feel and the touch points, but it drove very well, and a lot of it is because of the ED powertrain, the low battery. It keeps that center center of gravity nice, very good handling. The car drove well and again, it was very well damped. The suspensions, they did well.
Is this thing actually hitting the road, so because they have they have one of these things where you sign up and there’s a waiting list,
right? And then where is it going to be priced? Uh,
so 2727, 25 was originally what they wanted to do with I think’s probably around 2730 probably when you start like adding a couple things. Um, it’s going to be built out of a plant in Indiana and it’s their first deliveries are later this year.
OK, we’ll not much of this year left, so
there’s no, I know.We had the, uh, the old CEO and I think last year she’s not the CEO anymore. She, she, she’s in the company doing a different role now. They, they have a new CEO for, I think, an ex-Amazon guy, uh, so they’re really commercializing this car and they want to see that, you know, that we saw some experience centers open up in Chicago. Uh, I really think that for this car you really gotta drive it to really appreciate it, and I think that’s what, that’s my sort of takeaway is that Slate has to do that. They have to do get people in the car to be like, you know, if I want a $25,000 to $27,000 car, what’s it gonna be like? It sounds pretty cheap.Uh, and you go into it and it’s well designed and yeah, it’s got some plastic here and there, but, uh, it does the trick if you just need a car to go from A to B.
Yeah. Also, I just want to hang on this for a second. Did you say hand crank windows? Did I hear that correctly, yeah.
You can pay more, I think, and get to get
an electric window. No, you. No, you
cannot. You might be able to buy a kit,
but, and the other thing you said is that the, the, um, side mirrors you have to move by hand. You have to adjust
literally crank the window down and I had to push the mirror. That’s a you know
what, return to form.
Guess what? It was so easy because you know, you use a little joystick and you’re like, oh yes, you just it’s push that thing
in it, return to form.
Now the other side is a bit of a pain in the pain in the butt.I was a fan of the.
Also this is a passenger in your car that they do. This is a bit of a wild colorway with the, the red camo wrap,
that’s a wrap, and you can put, they’re going to sell wraps of whatever you want. That’s like their version of a digital camo for a test vehicle.
Alright guys, let’s switch gears and talk about food for a moment because there’s a bunch of food headlines that that caught our attention. Some fun ones. Um, let’s do the purely fun one first and then we’ll get to the more businessy one.Uh, so our Miles Sudlin always used to make fun of me because I didn’t get excited about food innovation, but I am excited about food packaging inflation innovation today because, uh, Cheerios and other cereals are now going to have Ziploc bags inside the box. Like,
there we go.
Why did it take until 2026 for somebody to come up with this? I have no idea, but like we all know you either gotta like pull the bag or cut the bag.And then you got to roll it or clip it or the clip maybe you put it in another container entirely. It’s a whole thing. And so this makes a lot
sense.
I mean, I’ll tell you why, Julie, because if you add up, you know, a $0.01 cost per unit to put the zipper on, you make 100 million boxes of cereal. OK.
What they’re also talking about how it’s got like a spout, like it’s gonna be specially designed for, for pouring, you know, we’re used to the fact that like, oh, you have the flip top cardboard, that’ll seal it, right? Or when you open the bag and then the thing expands and the, the cardboard box is like all like swollen like.You know, it’s like, what is going on here? The technology of packaging, no innovation for 50 years. Yeah,and now Cheerios.
And is this going to be the return to form they need? There’s some Nielsen IQ data out showing US cereal box purchases down 13% from 2021 to 2026. cereal. People aren’t buying cereal. I don’t know.Will this be the sell?
I don’t know if this will convince people who are not priorly prior cerealbuyers.
I think that’s why we’re seeing the magic spoon and the protein forward cereal.
There you go. There you go. Not that bad. Yeah, coming, coming to, coming to classic and honey nut first.
nuts, honey nuts. They’re not rolling it out for all the flavors first. Classic and honey nut. I’m a honey nut guy.
What are the other flavors?
Oh, they’ve got a bunch, Julie. They’ve got a bunch.
You can tell we’re not a big, as, as Brian Sazi knows, because he once gifted me this, uh, we are a heritage flakes household.Surprising no one, surprising
no one, surprising no one.
All right, let’s talk about the other food story, and that is about the Cheesecake Factory, which has recently gotten headlines after President Obama made a joke about the White House redo looking like if Saddam Hussein designed the Cheesecake Factory. Is that what he said, something
along those lines. Saddam Hussein designed the
cheesecake and now there’s been a big, a big defense on the right of Cheesecake Factory design. It is the house of the people according to it is.According to this thinking, Cheesecake Factory wisely has stayed out of the fray itself but quietly came out with earnings that beat estimates, and the stock has been doing quite well. It’s doing well this morning, I believe, and it’s been doing well. I
mean, look, Q3 revenue, Oh, it’s stocks
corrected. Q3 revenue is up nearly 14% year on year. That’s not bad. Comparable sales up more than 15%. Yeah, wow, it’s like
that. I’m looking at this Business Inside article. I said amid the firestorm, Cheesecake Factory.I mean it’s just so funny.
I don’t know if it’s is it a real firestorm though.
I was commenting on, you know, obviously like, you know, there’s some dishes that are famous dishes like the uh the fettuccine fettuccine
Alfredo. What’d you say 1900 calories this
morning, 1900 calories without chicken, without chicken, chicken, it’s more, uh, you know, this, this, uh, the Cajun salmon. I mean, yeah, I, I like a nice Cajun salmon. I would, I would go there for that dish and apparently went viral. Yeah, cheesecake, of course, their main thing if they had a, a Portuguese cheesecake.I would have that. Oh no, no, that’s right, uh, a basque, a basket,
11 other thing just on President Obama’s comments. You go into the, the Oval Office this morning, you walk up to the White House, there’s a lot more gold. There’s a lot more gold on those walls. I get
it to be than there is in a Cheesecake Factory.
No, than there used to be in the White House. Obviously there’s a lot more gold, so I, I get it.
Bill Clinton’s line about the Rose Garden, looking like Liberace’s bathroom.
Um, so, um, it looks like that stock is down because, um, they’re basically the people don’t think the momentum can continue. They can’t keep up thatpace of
you keep getting people on the
margins or on, and we’ll see if this whole thing gives them a bump.Or a slump or they don’t
talking about it we’re talking about it, yeah.
All right, that is it for the 8:30. Brian Sazi is next with Zazie Unleashed.
That’s one place I’ll never see Sazie is the Cheesecake Factory.
Oh,are you?
