Closing Bell - AI Trade Faces a Reality Check 10/14/26

Episode Date: October 14, 2026

Oracle and CoreWeave tumble as investors question the economics of the AI infrastructure boom. KeyBanc’s Jackson Ader breaks down the selloff and what it signals for the broader technology trade. DoubleLine CIO Jeffrey Sherman examines the volatile session in the bond market. Warburg Pincus CEO Jeffrey Perlman discusses the IPO market and the growing anticipation around Anthropic’s public debut as new revenue figures come into focus. Mizuho’s Jared Holz explains why money is rotating into healthcare and where he sees opportunity. Meantime, TCW Senior Portfolio Manager Eli Horton identifies his top picks for the AI buildout as investors reassess the winners and losers. Plus, Robert Frank examines the decline in stock ownership and what it reveals about investor behavior. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The bell's ringing in to the trading day, ringing the bell at the NYSD, Warburg-Pinka CEO Jeffrey Pearlman, who'll be joining us in just a few minutes, and at the NASAC Ever North, doing the honors. Welcome to closing bell overtime. We're licensed to UV at the NASAC market site. I'm Melissa Lee along with Mike Santoli. Sox getting hit hard today, especially technology, the Dow losing about 50 points, but the SB 500 down 1%, the NASAC 100, down 2%.

Concerns about too much spending and too much debt related to AI, the big pressure point here, Oracle down 9% core weave getting crushed on concerns about financing its debt. The Mag 7 needs all lower except for Apple, which continues to trade counter to the trend, and closing above that $5 trillion level for the first time. And a big reversal in bond yields today jumping when the CPI report was higher than expected and released, but way off the interday highs. And with nowhere to hide in tech, money is moving into health care, Lilly, gaining 4%. Is this just about market mechanics?

We'll talk to a health care analyst about the move. We start off with the first take on the close, and it really felt like a much more defensive stance as we had that sell off in tech. The weakness that continued from yesterday in session into today's session and financials just sort of added to the concerns here. Yeah, retreat from risk across a bunch of different fronts, and it wasn't able to really be offset by some of those defensive kind of bellwether. There's a couple of ways I would look at risk appetite waning. The J.P. Morgan over Citigroup ratio. Week to date, six percentage points.

JP Morgan. J. P. Morgan. Every other bank's pretty much down. Apple, it's like 850 basis points, outperformance versus the semis this week. And even the Dow over the Russell 2000. Russell 2000 looks like it's kind of breaking down below a 200-day moving average. So it's a signal of, you know, credit conditions tightening up and can equities handle that? We've been here before.

I know you've had these bouts of concern around these areas. It doesn't seem like we're going to give the benefit of the doubt to the A hardware food chain. The question is, can the other parts of tech and green? growth, you know, make up the difference. Yeah, and you were flagging that reversal in treasury yields in terms of the move we saw on the back of CPI and then sort of the easing off of those levels during the day as a flight to safety. And just to point out, the dollar index had a new high in today's session. It was thought that for a long time right now, treasuries were not the bid to safety.

That's right. Equities were the bid to safety. The dollar was the bid to safety. And so to see that reversal in today really shows you sort of the concern that may exist now in terms of this equity move that we've seen. That's right. In fact, it was late morning between 11 and 12 a.m. Eastern time when the stock market sell-off became a little bit more disorderly, higher volume. And all of a sudden it was, oh, rotation's not going to save the tape today. Right. And you did see some buying.

Now, in fairness to the kind of bond balls, 5.3 on tens has looked like a pretty good spot to buy for the last couple of weeks since we got in there. So maybe it's just a little bit of that. Also, the CPI number, it moved the Fed odds for October, which is the meeting in two weeks. but it did not say it's definitely going to happen. It's more like a one-third probability. So I do think that's going to leave us in suspense for a little while longer. Well, another day of weakness for parts of the AI trade, its concerns grow over the sector's borrowing binge.

Those worries hitting Oracle and Corweave hard as their bond yields rise as well. Corweave cratering to its worst day since February. Following the move, CEO Mike Intrader wrote in a letter obtained by CNBC, quote, others are trying to raise enormous amounts of capital without the execution. revenue, scale, or software solutions that Corweeb delivers to its customers. When you're building a new type of technology company, there will be periods of time when the market misunderstands and acts irrationally. So are the market moves or the stock moves really irrational or growing AI debt concerns valid here?

Joining us now is Jackson Ader from Key Bank Capital Markets. Jackson, I know you cover Oracle, which gets swept up in some of these concerns. Now the market viewing it as kind of a cloud. hardware platform play more than anything else. So how do you respond to what the market is clearly, you know, messaging as a concern here? Yeah, Mike, it's funny. Oracle, um, depending on the measure, doesn't really trade like a software company anymore, does it? If you look at the explanatory value of the IGV, a popular software ETF against Oracle's stock in the last 90 days, it has totally cratered. Oracle trades like more of a neocloud, and it trades with higher duration and higher sensitivity

to rates than it has in a number of years. Shouldn't it, though, Jackson, giving us debt load? I mean, are investors getting that part of the equation wrong? No, I don't think they're getting it wrong. I think, Melissa, it's funny, there are fundamental reasons, and then there are capital reasons why Oracle is trading like this. I think the fundamental reasons are, remember that it's cloud business, Oracle cloud infrastructure, OCI. We predict that by the end of their fiscal 2027, it's going to be about half of the company's revenue up from a fraction of that just a year or two ago. So fundamentally, the company is generating more revenue and hopefully more profits from this neocloud business. And then on the financing side, we're talking about going negative free cash flow for many years.

That increases the company's duration. And they increasingly have to fund themselves either through leases or actual debt issuance. And that makes them more sense of interest rates too. For sure. And so I think in kind of bigger picture, the way the market is feeling right now is we know that there's a lot more capital that has to be raised and deployed. The cost of that capital has been going up. You've seen a couple of IPOs been delayed or pulled at this point from some of these, you know, players around the edges of this industry.

And so you have this question as to whether, you know, we're going to get a kink in the hose here in terms of liquidity flowing into this part of the market. On the other hand, the GPU rental rates continue to be pretty high on all the existing deployed capacity. So how do we balance that out? What are you telling investors it means in terms of making a move right now? So it's funny on the GPU side because a lot of the larger neoclouds, they will lock in at least, if not lock in the pricing, there will be just about a kind of a stated margin on the committed volumes. It's more of the on-demand GPU pricing that, you know, I think can sometimes present a really nice upside, like another company I cover downmarket digital ocean where they're moving more toward.

more real-time pricing. But Oracle, they even said on the last call, it's not like you can look at the price per GPU hour in real-time and equated to Oracle's revenue. They have contracts in place that are much longer dated and they're more cemented in terms of their contract terms. So what we are telling investors is, at least in terms of Oracle's stock, if the stock prices below $150, we feel like you're getting either the OCI business or their traditional software, you know, their application and database business for a steep discount. Either one of those, you can choose which one you think is being heavily discounted. I think right now it's probably OCI because we don't have the same concerns about traditional software

like we did maybe six months ago. When you take a look, though, at the OCI business and think about the pressures, potentially that could face sort of the neocloud industry, and how do you see what is embedded in that discount right now? I mean, Gartner had this really interesting study that was just released today, in fact, and they project by 2030 the cost pressure and lack of differentiating business model will force over 80% of neocloud providers to cease independent operations. It's a pretty dire forecast.

What kind of pressure would OCI face? And is that already reflected in the stock? I don't know if that kind of pressure is reflected in the stock, Melissa. I mean, it's a good point. I haven't seen the Gardner report. I have no reason to think that it's, you know, accurate or inaccurate necessarily. But what I think is being priced in to OCI is one of the reasons that we've seen some other neoclouds needing to push their capital raises or their IPOs is there's this continued kind of worry about large customer prepayments. And if large customer prepayments either slow or just no longer are a part of the final. financing mechanism for some of these really large deals, then these companies are going to have to go out and get financing on their own. And one of the companies that has, if not, you know, signed a lot of prepayment deals, but has gotten really creative on Bring Your Own Chips that Oracle has done. They don't own and operate. They're almost all leases. I mean, they are getting creative on the financing side without trying to take on brand new debt. But if we see a continued deterioration in large customers being willing to or being forced to prepay large portions of their contracts, then, yeah, that is going to hurt the fringes, certainly of the neocloud trade, but also the core of the neocloud trade.

And that's why I think the companies that are taking on the most debt in the neocloud trade are seeing the worst performance in their stock price. Jackson, great to speak with you. Thank you. Thanks, guys. Jackson-Ader. Howder than expected September CPI print pushing yields higher today, although they did turn negative, as we mentioned on the session, as investors, fled to the safety trade on the back of concerns about the debt in certain areas of the AI trade. So what will win the battle for the next leg of the bond trade, higher inflation or worries

about the AI buildout? Joining us now is double-line deputy chief investment officer Jeff Sherman. He also manages the firm's opportunistic core bond ETF with Jeffrey Gunlock. Great to have you with us, Jeff. Yeah, good to see you guys. How do you look at the action that we've seen in the bond market in terms of the 10-year yield and what we saw today in terms of yields going up on fears about inflation and then coming down as if it's a bid to safety? Have we seen that bid right now in the bond market, the safety bid, I should say.

Yeah, well, I think what you see is still trepidation with the bond market. And, you know, with the chairman's new policy of not wanting to provide forward guidance, what you had coming into the CPI report was a lot of forward guidance. You had the lieutenants and other governors out there kind of arguing that there shouldn't be a hike on the table and that policy's in a good place. Then all of a sudden, we get this hotter than expected CPI report, and that all went out the window once again. And so I think what you saw was just a nervous reaction early in the bond market.

And as you talk about as the day went on, you know, again, the bond market concerns are leaking over to parts of the financing markets. And so you're seeing this in the more stressed operators. I've heard the previous sections, the oracles, the core weaves of the world, what struggles they're having right now. And this is something that is going to continue to be an overhang for the bond market for the foreseeable future. If we want to continue to press the AI trade and we want to have this buildout, there's going to be a significant capital requirements.

And so anytime you get these kind of sharp moves and bonds, you see these kind of what they said, longer duration assets, not performing as well. And so I think what you see also, as Mike correctly planned out, there's something about that kind of four-thirty-ish, sorry, five-thirtieth rate on the 10-year Treasury that seemed to bring buyers in. But look, we have a still heavy weekend economic data. We have retail sales tomorrow to gauge the health of the consumer in spite of this inflation. We got producer price indices, which we know bleed into CPI over time. And so I don't think we're out of the economic data would. So, again, it is one day's performance, but at least

bonds work somewhat stable when you look point to point, although there's a rough ride throughout the day. Yeah, Jeff, you mentioned some of the Fed commentary coming into the CPI today seemed like it sort of de-risks the report in the sense that maybe, if anything, it was just going to, you know, sort of eliminate October as a possible hike and then maybe look at December. We remain data dependent. Now we're, you know, a little bit in doubt again. What do you think the Fed ought to be doing here in light of what happened with core CPI today? Yeah, I mean, we've been in the camp that the Fed ought to hike. And so from the standpoint of the hikes, yeah, we're down to about a third probability.

One point it was 60% earlier today. Again, I think it's going to be a rough ride on data and it's going to be data dependent. That said, I think the Fed, where they need to get in policy is that they need to reverse these risk management cuts. And so if you recall what Powell said last year when he didn't have a lot of good insight into the labor force, we were losing CPI data, we weren't collecting data. They got kind of cornered to these risk management cuts in the time. It felt appropriate. Well, here we are talking about kind of reversing those, getting to there. Maybe it's December.

Maybe it's by, you know, the late January meeting where they get to that level of raising another 50 basis points cumulatively. But the Fed needs to do so to establish that credibility. And so I think what you see, you know, from the market's response here is that they want to believe that rates are lower. But at the end of the day, the bond market has already done the Fed's job. And so the bond market inherently is telling the Fed, it's okay to do this. You need to control the inflation narrative.

You've got to get the data down. And so the way of doing that, I know it's punitive on other parts of the economy, but in general, when you only have blunt instruments and really Fed policy and interest rate moves are one of them, that's what you have to respond with. Where do you see value right now, Jeff, in the bond market? I mean, at 530, would you be a buyer of tens? Yeah, I mean, unfortunately, we're not there anymore. It's like 519 or a little inside. That's where we close. But in general, I think it'd be great if we could have a time machine.

We'd be very good at this. But at the end of the day, I think what you see with value is that you want to have things you can analyze. And so we don't like these 30-year kind of SpaceX or Oracle-type bonds where you're out there really speculating on this, you know, magnificent technology working for 30 years. We like to keep it simple here. We're looking at very shorter duration, credit, things that we can analyze. Things are kind of off the run, off the securitized markets, and building together portfolios of credit of that. Today, especially with the front end repricing, you're talking about 480 on twos. If you're buying two-year kind of credit paper, you can do that in some instances with yields around 6% or the high fives today.

So in general, these high-quality, kind of shorter duration portfolios in credit makes specific sense. If you want to trade rates, our recommendation is to be in that five-to-seven-year part of the curve because it offers value. You don't get a lot of more pickup going to 10 years on yield, but also from a standpoint, if things soften because of the AI and the data center trade, ultimately that would give you a good rally point on that five to seven year part of the curve. So we're still avoiding the long game. We think those challenges still persist. And again, with just the amount of financing needs, you can see that the bond market's in charge

right now and it'll continue to do so. Jeff, great to speak with you. Thank you. Thanks, Melissa. Jeff Sherman. Coming up, Berkshire's bet on recent IPO, Bending Spoons, paying some immediate dividends, but new concerns are cropping up about the pipeline of companies set to go public. We will discuss those IPO woes with the CEO of global private equity firm Warbrook-Pinkus.

That's coming up. Cheers of Bending Spoons, shares jumping more than 40% today, as Berkshire Hathaway discloses an additional investment of $330 million, bringing its stake in the company to 4%. It also invested $600 million from the company when public back in July. Bending Spoons buys tech brands and attempts to revoke. vitalize them among its holdings, AOL, and Vimeo. And this does seem like Greg Abel going deeper into technology, putting his really his imprint on Berkshire Hathaway.

It does seem like it's a quirky kind of special situation version of tech. It's a roll-up of these, you know, kind of fading legacy brands. Also, a lot of skepticism met this IPO once it came out. There's a Wall Street Journal article about the accounting, and should they really, you know, not amortize these assets? You know, look at earnings X amortization when they are kind of like declining assets. And yet you clearly had a short position and now Berkshire says, sure, why not? A tiny piece of Berkshire's portfolio.

Of course. But a big bet on the, you know, in terms of the proportion of the size of the company. And it's very interesting because it's otherwise like growth investors in this name. It's like Bailey Gifford and things like that. Right. I mean, do you use AOL still? I never did. That's a secret there.

So I was such a late adopter. It came and went before I was really online. But point taken. All right. 26 was supposed to be the year of the IPO. We got SpaceX in June, the biggest IPO ever, but the road for open AI and Anthropic is a little bumpier, it seems. Let's talk more about the state of the IPO market with Warburg-Pinkist CEO Jeffrey Perlman, who's joining Leslie Leslie, who's joining Leslie, thank you, Mike, and thank you, Jeff, for doing this. I know you

just came off of the bell ringing to celebrate your 60th anniversary as a firm, noteworthy, because you're not even listed here or anywhere, but the firm has taken 200 companies, public, which is more than any other firm out there? Yeah, more than any other firm in the world. So then is this a hospitable environment for new issues right now, given that experience? You know, I think the IPO market, especially for private equity and sponsors, as we've been saying for a long time, that market's actually probably more structurally broken, right? You have 60% fewer public companies than you did a decade ago. And so it's really a high bar for us when we're thinking about making a new investment as to underwriting an IPO as the base case. It's not to say that

there aren't going to be certain companies that we do look to take public. But the vast majority of our sales over the last four to five years have actually been to strategics. Why do you think there is such a high hurdle for the IPO market relative to a sale? What is it that feels so broken about it that makes it kind of lower on the priority list in terms of an exit opportunity? You know, look, I think it's a function of far fewer active managers, the role of passive money in public markets. That really impacts the IPO six months after the IPO in terms of ultimately how you'll trade. but to actually get the company listed, you know, markets' expectations are 30, 40% discounts. It then takes three to four years to sell down as a sponsor.

So it's just probably the less preferred route for private equity. That's interesting. There is an overarching question right now, too, about the public markets' appetite for AI in particular. A slew of IPOs have gotten pulled on that front or punt it altogether. Much of the AI complex is also under pressure today. as core weave bonds trade at distressed levels or around distressed levels, how are you thinking about the concentration risk embedded in the public market? And are you concerned about a spillover in the private market as well?

Look, one of the single biggest things I'm hearing from our investors as I travel around the world is they look at this and they see one large single correlated bet. And in the public markets, you have 10 companies that essentially represent 50% of the S&P 500. they're looking for ways to diversify. And actually in private assets and especially private equity, there is a lot less exposure. You know, our investors are not paying us to try to find the next LLM. They're working with us to hopefully implement AI across our portfolio

and do it in more traditional businesses. And so I think in a way, if this continues, that level of concentration is, I think, going to be net additive to private assets and especially to private equity. Because for much of the last year, people have said that the private market is too over indexed to software, which wouldn't necessarily be a diversification player, or do you think it would be your... I think software is just one component of it. And, you know, look, we're past the period

if you look at the public markets of SaaSpocalypse, right? The faster growing businesses, the ones that were system of record, those are trading higher today than they did before SaaSpocalypse. It's really the slower growth businesses that are more AI exposed. So the reality is software should still be a part of investors' portfolios. Should it be as much as 30 or 40% as it was before? Probably not. And that's really where our firm has always, for 60 years, we've been focused on what we call diversification by design, diversified by geography, by sector, by vintage, by number of investments. And I think that's why, as a firm, we've been able to stand the test of time. I want to ask you about CPI that came out earlier today, hotter than expected.

And since you do have a unique purview into a wide range of portfolio companies that are out of the public view. I'm curious what you're seeing from those companies with regard to inflation and the ability to withstand higher interest rates. Look, it's a great question. We have over 200 portfolio companies, so we do have a pretty good snapshot of what's happening. And look, we've tried to prepare our businesses because of the likely pressures around inflation for a higher for longer interest rate environment. So the companies we've been working with, they absolutely are trying to pass through price increases and happen for the last few years to do that. but they've also been focused on their cost side.

And that's where AI is especially as they look to implement it, it can be both revenue enhancing, but even more so, it's going to help the bottom line on the cost side. And so for us, the single biggest investment we've made as a firm is around AI implementation across our portfolio. Has the cost of debt gotten so expensive that it makes future deployment, leverage buyouts more difficult? Does the math work at these levels?

I think what we try to remind our investors as well, we are in a structurally higher rate environment, but by historical standards, this is not that high. I think too many, I think folks wanted to go back to the previous rate regime of very, very low rates. And the reality is this is a much more constructive environment. We think this is a better investing environment in terms of likely revised price expectations from sellers. And more importantly today, it is what are you going to do with the business after you invest in it? And that is where, in our view, you have to be a scaled platform to be able to, leverage the value creation resources that are needed to help these companies inflect their growth.

The turnaround process after you buy it at a lower multiple and then ultimately sell it, maybe not IPO if the IPO market is broken, as you say. Exactly. Jeffrey, thank you so much. Appreciate it. Thank you. Guys, I'll send it back to you. All right, Leslie, thank you. Check out here as a Pfizer made a new 52-week high today. The first time that's happened in nearly five years is this move in pharma stocks based on fundamentals or just a reaction to today's tech sell-off. That's coming up on closing bell overtime. Healthcare leading the market higher today with the sector, ETF, XLV, posting

its best day since August. Big gains in Bristol Myers, Eli Lilly, Merck and Moderna, helping to drive the move. So if the market is starting to rotate out of tech, what are the best buys in the sector with us now to share his take as Jared Holes' Mizuho Healthcare Equity Strategist? Jared, great to have you with us. You sent out a note earlier saying this was

just pure rotation here. And you make the point that in terms evaluations now. If you compare to BACAPFARMA, some of the names that we mentioned to technology, they're almost the same. Is this still a flight to safety move in your view at this point at these valuations? Yeah, thanks a lot for having me.

I do. I feel like today was such a pronounced rotation. I mean, one of the worst days we've had in a while for a lot of the tech construct and money flying into health care. I mean, sometimes health care doesn't wind up being as defensive as we want it, just given a lot of you know, political and regulatory undercurrents, but good to see the space trade well today.

And it's almost on par with the SMP now, which is kind of incredible. It was lagging by like 600 basis points or so a couple of weeks ago. And yes, this is one of the best days for health care versus the market this year. Is there anything thematic to pull out of what is working more than others, Jared? Is it just, you know, mega cap and liquidity, things like Lilly? or, you know, is there any excitement around, you know, certain lanes in terms of drug development or anything else? Yeah, I mean, I think it's widespread today. You know, you saw some of the moves most pronounced in larger caps.

I think that's what happens when, you know, some of this rotational stuff starts to take effect, is that the larger, more liquid names naturally have the most money flow into them. There's a lot going on in health care, though. I think there is some, you know, opportunities in the pharmaceutical industry, life science tools. Investors think growth is going to accelerate next year. That would be the thermos and the Danahurs. You know, medical device stocks have been down and out, but potentially some mean reversion there. And then I think the thing that's, you know, maybe the most important consideration other than earnings is this upcoming midterm election and what it could mean, I think if you've got a split, Congress, it's typically very good for health care because little change is viewed as positive.

But even in the event that the Democrats wind up getting both the House and Senate, it could bode well for some health care verticals that are more levered to utilization. That would be hospitals and medical devices. So I do think there is a lot going on here. Today, though, obviously the large caps getting all the love sort of like throughout the sector. In terms of the large cap, though, Jared. I mean, how do you look, what's always plagued them is loss of exclusivity in the patent cliff. Some are in better shape in terms of the pipelines than others, even though they face L-O-E. So how do you view sort of what the buys are here? So many of them have done pretty well now against the S&P 500, but some of them have steeper cliffs than others. Yeah, that's going to be the thing

that this sector sort of grapples with forever, is just the pace of how. long the patent lives extend for the major drugs. I mean, we've, we've had conversations around this for Bristol and Merck. In terms of the names that look probably the best here, I mean, I think most around the street think that Eli Lilly is in the best shape over the next five years, just given what they've been able to accomplish and the pipeline. J&J, even though the stock was down a lot yesterday, because of issues they're having in medical devices, that pharma business within J&J looks to be one of the best. And then I would probably say ABV and maybe biogen after that. It really depends. Vertex is on that list, too. I think most of the major players have some issue.

It's just it depends on whether that's a 20, 27, 2028 issue, or closer to 2030. But I think those are probably the handful in the best shape, at least arguably. Yeah, you know, six months ago, the big bulk case for health care was nobody wants it. It's neglected. It's under own. I guess not the case anymore. We'll see if it can build on this. Jared, thanks a lot for joining us. Jared. Thank you. Appreciate it. We are learning more details about the Saudi National who was arrested for allegedly planning a recording device in OpenAI's executive conference room. According to a court filing that was recently unsealed, the defendant, his wife, and a third family member had booked one-way tickets to Saudi Arabia for Monday, October 12th, flying through Istanbul.

This new revelation adding new intrigue to this story after the Justice Department said yesterday that the defendant was arrested on October 9th. That would have been last Friday. Plot thickens. Interesting story. Well, what's worrying the CEOs of the nation's largest banks, same thing everyone else is worried about AI. We'll hear what David Solomon and Larry Fink had to say next on closing below. Welcome back to closing bell over time, live from the NASDAQ market site. Sox falling across the board today, S&P 500 down a percent.

Its first 1% loss since the end of July, the NASAC 100 losing 2%. AI stocks getting hit hard as core wheat bonds trade near distress levels. That stock is down 15%, Oracle down almost 9. It was also an active day in the bond market yield jumping following the CPI report, but spent the rest of the day sliding money poured in as tech stocks sold off. Well, let's get to Julia Borson for a CNBC news update now. Julie. The U.S. is reportedly sending several hundred army soldiers to Latin America to train and conduct exercises with local forces. According to the New York Times, the first elements of a 600 soldier battalion at Fort Drum in New York have begun deploying to a new jungle training facility in Panama.

This comes as the U.S. ramps up drug trafficking enforcement in the region. Democrats say they will send more than 100 trained Senate staffers to keep polling locations to act as observers in the midterm elections next month. They will deploy across nine states where close Senate races are taking place, including Ohio, Georgia, and Michigan. Democratic leaders say they will document possible voter intimidation, threats against workers and other irregularities. A federal judge refused to block the Trump administration's effort to end DEI programs at companies that do business with the U.S. government.

Trump's order bars what he calls radically discriminatory DEI activities by federal contractors and requires them to certify compliance in writing or risk losing contracts. Back over to you. Julia, thank you. Well, the 30-year mortgage rate rising 10 basis points from yesterday It hit 7.56%, raising even more concerns about the outlook for housing. But Morgan Stanley is reiterating its overweight rating and $400 price target on Home Depot, implying upside of more than 30 percent from here.

The home improvement retailer's CFO recently called the housing market frozen, but after meeting with management and touring a store in Atlanta, Morgan Stanley's analysts came away bullish on its market share gains and margin discipline, writing an eventual normalization in housing activity represents upside to the thesis, rather than a prerequisite for operational progress. He also adds share gains are becoming more evident, even without a macro tailwind, noting pro customers appear more willing to consolidate their spending

with Home Depot, you know, essentially saying expectations are rock bottom. Management is sort of resigned to this idea that you can't count on market growth. You know, earnings per share at Home Depot are basically flatline for four years, so they've been trying to tread water here. I guess this is a call really on just, you know, things will improve at some point, and when they do improve Home Depot will be the one to benefit from it. It was interesting also to see the bull case on Home Depot. It was more than a $500 price target.

And part of that bull case was the Fed cuts interest rates, which I thought was really optimistic and obviously not what is priced into the market. A lot would have to happen. Some are still saying for next year we can resume cuts. I think City's been on that train. But yeah, it would take quite a bit from here. Also, I would say consumer discretionary has been so weak for so long that you almost wonder if it's finally getting washed out.

Exactly. The biggest banks in the world reporting earnings this week and CEOs appearing on CNBC, they are worried about AI. Goldman Sachs CEO, David Solomon, says the important thing about how to proceed is establishing accountability for companies and individuals. It's not a binary decision that we either let innovation go unleashed or we stop it and constrain it with overly burdensome regulation. We have to innovate and we have to be responsible. And for starters, when I think about Goldman Sachs as we implement AI in the enterprise,

there has to be real human accountability for every model we deploy and everything we do. We've been using AI-based trading systems, I think, for almost 20 years. We could never say, oh, my God, the trading system went rogue and we lost a bunch of money and not have someone accountable for that. Meanwhile, Black Rocks Larry Fank is concerned about what will happen to the economy if worries about the AI buildout lead to a slowdown in development. There's a lot of rumors and fear about data centers. Most of it is on misinformation.

Most of it is wrong. You know, whether it's use of water. You know, golf courses use more water than a data center. I mean, I can go on and all the different things. But if we have a moratorium of some sort in this country, we will be in a recession. So much of our economy, as you said, David, is based on the build-out of this cap-ax.

this CAPEX. And by the way, so much of what BlackRock itself is doing is built on this CAPEX. And if that goes south, a lot of Black Rock, I mean, the doubts will pile in in terms of the Black Rock story. I mean, they are a holder, for instance, of Cor Weave debt, along with Carlisle, KKR, Baghdad, major holders of the debt there. So a lot of that has to go right for private capital, infrastructure funds. And also, of course, you know, one of the big firms that are, you know, was sitting on this

desk when Jensen Wong was here saying we have. these firms go to finance and stuff. And when it comes to David Salman's thoughts on accountability with AI, I do think there's something interesting about an investment bank that has a compliance culture where it's kind of like, look, we have these dangerous automated systems all over the place that move money around without people specifically touching it. You still have to have somebody answer for what it does. Right. It makes a lot of sense to introduce moral hazard, which doesn't exist right now. When Hugging Face was breached, whose responsibility was it? It was like, I don't know. Exactly. The tech companies are

Like, sorry. Yeah, exactly. Well, companies powering AI data centers have been red hot this year, but we're under a lot of pressure today. Up next, we'll discuss whether this trade is running out of juice or if the sell-off is a buying opportunity. And rising oil prices pushing several S&P 500 energy stocks to new highs today, including Chevron, ExxonMobil, ConocoPhill, Phillips, Marathon Petroleum, and Phillips 66. Closing Bill over time with me right back. Dell and Heel at Packard Enterprise among the worst performers in the S&B 500 today. Not only were they caught up in the AI downturn, but both names also got downgraded at Barclays, the firm taking both stocks to equal weight from overweight, cutting the price target on Dell to 574 from 603,

trimming HPE from 277 from 83. The analysts there are citing evaluation and meaningful AI inflection when it comes to revenue growth, no AI inflection, I should say. Dell shares quadrupling so far this year with HPE nearly tripling. You wouldn't fault the analysts for just saying chips off the table, it's had a massive run. We're just going to move here. But to go the one step farther and saying we haven't seen that AI inflection

and the outperformance was really powered by their ability to manage memory costs, which I thought was interesting. Yeah, exactly. The scale advantage there. And, you know, these things have been revalued in a radical way on the idea that they're mostly AI plays. So, interesting call. As you've discussed today, investor concerns for ASML and CoreWeave,

spreading across the AI trade, including companies, tied to AI's physical buildout, stocks like Venture Global, Verteve, and Caterpillar. So is today's blip a good chance to pick up some key names in this sector slightly cheaper, or should you look out for more downside ahead? Joining us now is Eli Horton, senior portfolio manager at TCW, focused on the companies powering the AI buildout. Good to see you, Eli. Good to see you, Mike. So, I mean, a little bit of a rough day. Your ETF down like 3%.

Obviously, the market is viewing this basket of companies as, you know, a challenge. chain in the AI, you know, hardware chain. Where do you come out on that? Look, as a fundamental investor, you're trying to have a differentiated view. And I think right now the market is applying a very narrow lens to much of the market. And there's a lot of talk I heard it earlier on the show that there is really one large trade taking place in the market. And I'd argue that that is a bit of a microscopic focus.

And there's a lot more taking place for many of the businesses that we are invested in that are powering the energy transformation. electrification, energy security, even decarbonization. There's much more at play here than just AI, which is, of course, a component, but there's a lot more at play. A lot of that makes sense. But at the same time, among your top holdings are chip equipment companies, broadcom. I mean, you sort of overlap in that sort of big swoosh lower there. So are you not as defensive as some might think when you're saying, you know, AI build out and power and all these other sort of factors? 100%.

I mean, I'll go back to it. We define the energy transformation as really three pillars, energy security, electrification, of which AI is a component, which drives electricity demand, and then being more efficient with the types of energy we produce and consume, the migration of fossil fuels to something like renewables over many decades. That's all very capital-intensive. So our portfolio invests in those three pillars. Businesses like semiconductors and applied materials absolutely fit on that electrification

and that power aspect. I wouldn't say we're trying to be defensive, but we're trying to provide a unique system-thinking approach to the energy transformation. There was a storyline for a couple of years that these industrial companies, some of which you own, like an Eaton or something like that, you know, they obviously have been well-managed and well-placed companies for a long time, but then this just wall of capital and orders came in. And they've never, you know, experienced this. There's multiple years looking out of order books. So I suppose there has to be some payback for an unwind if you're going to, you know, experience a bit of a slowdown or if you have some hiccups on the financing side. These businesses grew at GDP plus for decades. And the reason was is there were cyclical headwinds facing their companies.

China was undercutting us on costs. We moved manufacturing out of this country. Electricity demand was essentially flat for two decades. There was no investment in the grid. and all of those cyclical headwinds are now needing to be made up for as we are structurally growing many of those drivers are bringing manufacturing back energy security is a priority grid resiliency and growth is a priority so it's no surprise

now I think it's important the market should look at this growth with skepticism that's healthy many of these companies are sold out into the end of the decade you can't just take that as a given that type of backlog so you need to be skeptical and do that work and make sure that these companies do receive those cash flows. But it's a completely different picture now than it was for 20 plus years. Let's say, though, that the slowdown in the AI buildout does happen. What part of your portfolio is the most defensive in your view? And is it most of the ETF or is it a small sliver?

You mentioned one of the companies that I think is incredibly intriguing right now, which is Venture Global. We own Venture Global and Schneer. These are two companies that I think really epitomize the importance of energy security globally. Look at what's happened in the Middle East right now. So since March, something around 20% of the largest gas exporter in the Middle East, their facilities have been taken offline through structural impairment from bombs. What's happened?

Europe gas prices have gone up 4x in that time period. And companies in Europe and in Asia are looking for more resilient ways to get energy supply, power supply. That means North American exporters. The spread that they take on the exported gas is blowing out. This is all going to come back to them and it highlights the importance of energy

security. These companies aren't really related to the AI trade at all. Eli, good to see you. Thank you. Thanks. Eli Horton, TCW. Up next we'll break down new data suggesting the retail investor boom may be peaking and what it could mean for the stock market. Closing bell overtime, live from the NASAC market

site. Be right back. New data from the Federal Reserve is raising questions about the future of the retail investor boom. Robert Frank has the details. Hey, Robert. Hey, Mike. Well, the retail stock revolution may have peaked right after the pandemic. New data from the Federal Reserve showing that household ownership of stocks is now on the decline. Only 19% of Americans had direct ownership of stocks last year. That was down from 21% in 2022. Total stock ownership, so that includes retirement funds and mutual funds. that also fell from 58 to 56%.

Most of the decline was among lower wealth and younger households. That's key. Those who stayed in the market were rewarded, though. The median holdings among those who held stocks increased 36% over that time period to $77,000. Now, the rising market also causing a wider generational wealth gap, households over the age of 75 are now the wealthiest, with average net worth of $1.9 million, and their wealth grew 10% since 2022. That compares to a wealth decline of 33% for those under the age of 35.

For more on the stock ownership boom in America and how it's changing generational wealth, you can sign up for the Inside Wealth newsletter out tomorrow morning at cnbc.com slash inside wealth. Guys? There are a lot of financial products out there, though, Robert, that appeal to younger people that are not stocks these days. Yeah, you know, I think prediction markets may have played a role, obviously sports betting, obviously crypto, all those things are big contributors, but they went out of stocks and their wealth declined.

So there does appear to be some correlation in terms of how they were doing in the stock market versus perhaps all the other asset classes that they migrated to. I do also think the starting point is relevant because you did have that surge in meme stock trade. and a lot of hobbyists getting involved 2021 into 2022, and maybe they got burned and went elsewhere. Yeah, it's a great point. Also, we should just point out that the decline was very small, just a couple percentage. And still, the number of people either buying stocks directly or indirectly

is still way above where it was pre-pandemic. So again, what's important here is not the actual numbers that small. It's just the direction of change now appears to be on the decline, but we're still above where we were. pre-2020. Robert, thank you. Robert Frank. Let's get your set up with tomorrow's trade today. Before the bell, we'll get earnings from Taiwan Semiconductor, U.S. Bank,

for PNC Financial Bank of New York, Mellon, and Charles Schwab. And after the bell, it'll be results from interactive brokers, J.B. Hunt, as well as Alcoa on the economic front, will get the September producer price index, retail sales, and weekly jobless claim. So a lot of econ data, and we'll see, of course, how core weave in Oracle trade tomorrow. For sure, yeah, see if there's credit stress. us continues for another day. It was a one-day blip. We hadn't had a 1% decline in the S&P in how many weeks.

And there we go. That does a provertime today. Fast when he starts right after this.