Closing Bell - Chips, Memory Stocks Lead 8/17/26

Episode Date: August 17, 2026

Markets continue to lean on technology as investors weigh strong earnings against rising geopolitical and macro risks. Dan Niles, Founder and Portfolio Manager of Niles Investment Management, explains why he remains bullish but sees reason to get more selective as stocks climb. Dennis Unkovic, author of The Fragility of China, assesses the state of China's economy, weakening consumer demand and Beijing's push to make technology a key engine of growth. Joe Amato, President and CIO of Neuberger Berman, looks beneath a powerful earnings season and explains why he believes the AI capital spending cycle is spreading through the broader economy. 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 bringing an end to the Training Day at the NYSE's Snowflake. Join the honors. Net the NASDAQ, R-TB Digital, ending the trading day. Welcome to closing bell overtime. Lashness Studio B at the NASAC market site. I'm Melissa Lee along with Mike Santoli. Sox modestly hired today as rates and oil rose, the down S&P off about a half a percent each. The NASAC down a quarter of a percent.

Software and big tech, mostly lower. Meta the notable Mag 7 decliner, the company getting ready for another big trial tomorrow over social media practices. We'll have much more on that straight ahead. Semis, including memory names. seeing notable strength on the day. Sandisk, Micron, Western Digital leading the way. Retail a weak spot today. Sneaker stocks were lower. Nike now at the lowest level since 2014, breaking $40 a share. High-end names also under pressure, PVH and Capri, the biggest losers. And refiners, a non-AI winner once again.

Marathon Petroleum, Valero and Phillips, the winners. Oil up more than 2% on the day as Iran rules out an interim deal extension. And clearly, Melissa, that had impact in the bond market as well, helping to push yields higher among some other factors. Pattern has been that means consumer week, the broader list of stocks this week. We did have negative breath. More of a kind of slouching into the new week than it was a real heavy sell-off. Down half a percent of the S&P still has room to like even last week's low. But it just feels as if it was one of those times where we had this run, 6 percent up in 12 days. And now it's a matter of kind of plicking the winners from the losers.

again. We had this run and volatility sits basically at 2026 lows, I mean, just off of it. I mean, I don't know if you told me all the headlines that would start the day off today. I don't know if I would say the markets would end the day lower by about a half percent. It does seem like the markets are very inured to, you know, we're going to bomb the whatever out of a country. With oil higher with the 10-year yield at 4.72 percent. It's just there's all these concerns out there that are lurking, and yet nothing can drag those memory stocks, for instance, lower. It's quite amazing. Well, I do think that, you know, look, we're pushing six months, I guess, since the war started.

And it hasn't paid to be alarmist in a broad way about it. But maybe the memory strength does tell us something, which is, you know, find me the one theme where it seems like there's a wall of money running at it, having nothing to do with what the price of oil is or anything else. And it seems like that's where we arrive. Let's get to the bond market here where yields did move higher again. The 30-year yield hitting the highest level since 2007, Rick Santelli has more. more from Chicago. Hi, Rick. Hi, Melissa. Indeed, let's look at the 12-hour chart of tens. Now, I understand that 30-year made a high going back to 07, but the tens, they couldn't even take out their high from the last day in July. Now, if you look at an intradate chart and hold that

intradate chart for a minute. At 830 Eastern, we had a very strong empire. Rates moved up a bit. And the rest of the move, add in oil, and you could see the second catalyst as we sit on the high yields of the day. Now, let's look at the time. the July number. If you look at the end of July, you could see, 474 is currently the high yield close. And that's a high yield close going back to Jan of 25. But I want to point out, if you look at the difference between 30s and 10s, known as the knob spread, right now it's hovering just below 60. That's the widest it's been since early May. And the reason I point that out is, is because the 30 years interesting. But it isn't the benchmark. And it's tending to widen out like the premiums

in between many maturities. We want to keep a closer eye, though, on that four and three quarters level and a 10, especially on a closing basis. And we all know that Goldman kind of changed what they're thinking about with regard to the Fed. But there's been many that were there already, especially after for the last three months, our average job creation is only 20,000 on non-farm. Mike, Melissa, back to you. Yeah, and we're keeping our eye on the 10-year yield because of Rick, a milestone that we crossed last night. And you, you, you, you We sent out an email to all of us here at CNBC regarding the debt clock. I mean, we're approaching these levels here with 10-year yields where they are, and it's going to cost us more.

And at the same time, you have this dynamic where even if the Fed, if we're pricing out Fed hikes, the rest of the world is hiking. Oh, absolutely. There's no doubt about it. And I don't want to dismiss the notion of $40 trillion with a T in terms of the debt clock. That is huge. But let's keep in mind, whether a couple years ago it's at $37 billion or $40 billion. billion. Today, nobody seems very concerned, and yet global yields, whether you look at boon yields, they're up, whether you look at Japanese tenure yields, they're up. Yes, there's an entire world

whose yields are up for almost the same reasons that had his debt and deficits. Now, the tenure's awfully well-behaved. But those facts alone, above and beyond anything the Fed may do, is enough potential horsepower to shoot yields up more dramatically. Rick, thank you, Rick Santali. We do have a news alert on Anthropic. We want to get to. Kate Rooney's got the details there. Kate. Hey, Melissa. So from what I'm hearing, Anthropic is now on track to generate.

This is annualized revenue of more than $65 billion. This is according to two people familiar with the matter. It would be a sevenfold increase just from a year ago. These numbers from what I'm hearing are as of the end of July. Again, this is a projected run rate. So it's based on the current performance. A lot could change here. But this is what I'm told was shared,

with investors over the weekend. It does come ahead of Anthropics' highly anticipated IPO. And the revenue run rate, when the company last reported this, this was during a fundraise earlier this year in May, $47 billion. So it speaks to just how quickly the revenue has been ramping as this company looks to do its roadshow. Some of the other numbers we have been reporting today, preliminary Q2 revenue, which was also shared with investors over the weekend. We have heard from a source topped $11.5 billion. That was up 14x. But that is the latest should also mention here, Bloomberg was first to report some of these details, no comment from Anthropic guys, but the latest revenue ramp for you. Back over to you. Kate, we ask

this all the time, but we think this is last month's revenue annualized? Annualized. So that is, they are extrapolating based on current performance. So it's like $5.5 billion last month is what their revenue was. They say that's a $65 billion runway, something like that. Exactly. And then quarterly, so $11.5 billion was what they're sort of preliminarily projecting for Q2. So there's some math involved here. They're forecasting out. It also suggests that or would baked into this number is the expectation that the revenue continues

to ramp the company continues to do well. There's a lot of headwinds out there. There's a lot of things that could change the story here. We talk about open source competition pricing pressure. So it's a bullish number. But as you say, annualized and sort of forecast it out. Well, I mean, if it's annualized, it means they're saying it'll stay at this rate times 12. So, you know, if it keeps ramping, who knows what the number will be at the end of the year.

We also heard from Reuters at 2028, the more bullish number, $190 billion in terms of what they're forecasting way in the future. That's maybe the number that could change a bit more. But this is what they're telling. I should also say this is current investors. So this is people on the cap table. But it does not necessarily mean this is what they're communicating to bankers. Understood. All right, Kate, thank you.

Well, let's stay on tech. The sector continues to make a comeback following July's slump. The NASDAQ 100, up 7%. since July 29th, while the semiconductor ETF is up 12%, mostly, of course, driven by strong earnings results from the hyperscalers, alongside a boost in AI-CAP-X spending, which is forecasted

to exceed a trillion dollars in 2026. So, should investors stick to this theme or look elsewhere? Joining us now is Niles Investment Management's Dan, Dan, it's good to see you. Let's just start with the, you know, the anthropic number. You get these fresh estimates of annualized

revenue. Clearly, at the end-user level, there's been no reason to think that there's let up. Everybody is taking a signal from that. You have to try to massively expand capacity to accommodate, you know, the future expected revenue. So does the top keep spending for a while? Well, I think it definitely does. And you saw it with numbers recently, where if you look at the big, the biggest three public cloud vendors, you saw Amazon, Google, Microsoft, their cloud businesses go from growing 35% year over year in the March quarter to 43% in the June quarter, and that's expected to accelerate in the September quarter.

The more important part is that that operating margins for those three guys combined moved up 2% from the March quarter to the June quarter. And, you know, to the news just reported on Anthropic, obviously the revenue is ramping from $9 billion at the end of that last year to $47 billion annualized run rate in May to $65 billion now, that's great. The more interesting part is that supposedly on an operating income basis adjusted and won't have to see what adjusted exactly means, they got to profitability in the June quarter. And so if you're getting to profitability, that's the big thing because obviously there's a lot of concerns around things like cash flows

at the big hyperscalers where those have obviously gotten compressed and you're having companies having to hit the debt and equity markets to raise capital. But profitability, if you're able to generate that, that helps reduce a lot of those concerns. Dan, I'm wondering what your thoughts are on, you know, this capital spending and how secure it is. I mean, you mentioned basically the cost of financing everything. And as we see the 10-year yield at 4.7 plus percent comfortably, we have the dynamic of global yields higher. We have the dynamic of the government having to issue bonds, et cetera, et cetera. basically the sort of, you know, putting a, putting the onus on the issuers to actually, you know,

give a yield to investors that will compensate them for the risk. Are you concerned that perhaps parts of this cap-expend could be at risk? Oh, yeah, I'm hugely concerned. But I think in the near term, as we just talked about, if you're having these companies generate profitable revenue growth, which is what seems to be happening, then the For funding concerns for the short term, they're going to be put aside. I mean, you can go back to the Internet build. You had vendor financing as early as 1997-98, and we all remember NASDAQ going up 86% in 1999

and another 24% to start 2000. So I think in the near term, it sounds really strong for the AI-related stuff. To your point, Melissa, though, I look at the period between now and November midterms. And if you go back and you look at data since 1990, in midterm election years, you typically end up with about a 10% peak to trough drawdown from July 31st to like, you know, early November. In non-election years, that number is closer to 5%. So from a broader market perspective, I think things like oil being where it is, 30 years, Treasury sitting up where they were back in 2007, all of those. those things are like extra straws on the camel's back. And I think it's going to probably break at some point between now and midterms. And so I'm trying to balance, you know, how I'm

thinking about investing in terms of, all right, this is where the money's flowing. That seems to be infrastructure names like semis, like hypers, like hypers, rest of the market, things like consumer discretionary, et cetera, much more negative on. And so trying to short, you know, broad things in those sectors to protect against a potential, you know, bigger than normal drawdown between now and midterms. Sure. And then, you know, I guess there's this shadow, Dan, out there of Wall Street Journal today, making a bit of a splash, talking about a lot of the commitments that aren't reflected on the big

company's books. These are basically future, you know, capacity that they'll need to add or leases that they're ready to enter to accommodate orders for more cloud capacity for the most part, like totaling $3 trillion. Now, you know, who knows exactly how the market is going to price something like that or whether it's considered to be just, you know, that's more growth in the pipeline for the AHA hardware trade or that's risk that's going to potentially be shouldered by the hyperscalors and others. Well, right now it's both, right? So let's go back to the internet example. As I said earlier, you had vendor financing, you know, three years, two years before that bubble ever broke. And so

it depends on what hat you have on, right? In the near term, if profitability continues to improve, and don't forget, we had something new happened very recently, which is you had this thing called agentic AI with open claw getting formalized on January 30th, come in. Since then, the number of tokens being produced is up seven and a half times from that level to where we are now. That's more than offset the 50% decline we've seen because of all these open-weight, open-source models, which is driven down the cost per token you can charge about 50% since the end of May. So you've got all these competing things going on right now. My fundamental belief is if January 30th is when Agentic AI started, you've at least got a year

of room to run. All of this stuff we're talking about of off-balance sheet financing, circular financing, that's going to make the eventual breaking of this really horrific. but in the near term, I think the path of least resistance is a lot higher because you've got very strong revenue growth for AI and more importantly, expanding profit growth in AI. You like Intel, Dan, as the former Intel analyst. What do you see here at this point? I mean, the valuation is enough to scare people away.

Well, number one, you're dating both of us, which I don't like. Yeah, absolutely. But if you look at Intel, here's the Cardinal rule with semiconductor stocks. You never know how high the estimates are going to go, and you never know how low they're going to go. With Intel, you've got three different ways to win. And you're right, it does look like it's expensive if you look at it on a PE basis. But you have to remember, when they reported the June quarter, they guided the September quarter 40% above where the street was for EPS. And right now, you've got, you know, massive.

headwind with all these foundry costs, et cetera, for the company, that that's going to get alleviated, I think, sometime next year, because I think you're going to see companies like Apple start to ramp. You're never going to see a press release, right? Because these big guys, they just don't do that. But I think you're going to see things like Apple on their microprocessor side start to ramp. They've already got announced agreements with Tesla. Invita invested money in the company. Obviously, they have an announced deal with Google. And so I think from the fact, boundary side, you're going to see them go from a massive lagger to TSM to starting to catch up. Packaging, advanced packaging is another way to win because that's something where they're already

really good at. And then finally, obviously, Agentic means you go from eight GPUs to one CPU to something closer to one to one. And that really benefits them. And the valuation, if you look at it on an enterprise value to sales basis, it's actually at a massive discount to both AMD and T. TSM, which are the two closest comparables to them. So I'm usually bullish on Intel because you've got three different ways to win. The valuation is low when you think about them under-earning.

And, you know, Agenic is brand new. And I love it when you have a ratio go from eight to one to one-to-one in your favor. Right. Dan, always great to speak with you. Thanks, Dan, Nile. Thank you. Let's say on tech, the cybersecurity sector has been gaining a lot of momentum this year. names like Palo Alto, Crowdstrike Fortnite, up more than 80%. According to Jeffries, the moves are driven by investor positivity around the need to secure AI and preference for large-cap platforms. The rise of hacking incidents by AI agents has sparked to cybersecurity spending boom to address threats posed by frontier AI-powered cyber attacks.

OpenAI co-founder and President Greg Brockman addressed the need to change cybersecurity on Squawk box this morning. We are in a window right now where we can see a little bit to the future. I talked to a number of organizations going to conferences talking about cybersecurity, and everyone feels that we are in a moment where cybersecurity fundamentally needs to change. Every organization needs to up-level its cybersecurity practices. But many people don't know where to start. And I think that no one is really talking about this message publicly. Everyone kind of feels it talks about it in closed rooms, but it is important that we as a country and as a world really

take the moment seriously. So the open eye-hugging face incident, it was one moment we got to see into the future. You could see how automated attacks are going to become possible, that these will be capabilities that will be in the hands of threat actors in upcoming months, because

this technology is being created across the world by many organizations. It's amazing how far the pendulum has swung on these particular stocks. I mean, considering where they were at their lows, the analysts at Jeffreys, Joe Gallo, pointing out that from the IGV low in April, you know, these stocks on average are up 100% roughly.

So they've come all the way back. These are the answer supposedly to all these hacking incidents. Yeah, Brockman says, you know, a lot of people don't know where to start. The assumption is they're going to start with these vendors. Right. Every IT department at least going to see if they have, you know, the antidote to try to shore things up. If there's one thing that does give pause, it is the consensus nature of this now. All of a sudden, cyber is like it feels like the safest place to own software. And Jeffries also points out the valuations on a growth-adjusted basis are now above the 2021 peak for the group.

So you wonder what is already being priced in there. And the inflection, the AI inflection, is nascent. So they haven't really seen that sort of additional revenue because of AI threats yet. So it's sort of a mismatch here. Maybe we're in between, yeah. All right, well, turning overseas, the memorandum of understanding that the U.S. and Iran signed in mid-June expires today without any agreement. according to reports, Iran's foreign ministry has ruled out talks to extend the memorandum.

Amon Jabbers here with the latest. Hey, Mike, that's right. President Trump told reporters again this afternoon that he wants to make the Strait of Hormuz a permanent U.S. territory. And he insisted that the U.S. has the military capacity to do just that. We have a blockade. We control it with a blockade. And I like the idea of declaring it a territory. We have total control over the state.

the street. Now, they can be a nuisance. They can put a mine in the water and people don't like having mines hit their billion-dollar ships, you know, et cetera. But the blockade has been very effective. And, you know, we're taking out. Now, maybe that will stop or maybe it'll open up even further. And although the president insisted in that same appearance that the straight is open during those comments, the pace of traffic there is actually slowing dramatically. Reuters reported that just five commodity vessels transited the straight on Saturday with none registered for Sunday. They're citing ship tracking data from Kepler there. Now, that's compared to 31 ships in the prior weekend. So you can see the trend line is down significantly week over week.

The president's son, meanwhile, the president's son-in-law and chief negotiator Jared Kushner told Fox this afternoon that there are conversations between the United States and Iran, and he characterized those conversations as robust and positive. That comment coming on a day in which President Trump also in a comment to Fox this morning threatened to bomb the S out of Oman after reports that the Omanis are in talks with Iran to control the Strait of Hormuz, including potentially charging tolls on that vital waterway guys. Back over to you. Amen, thanks. Amen Javers. Coming up, media insiders give us their predictions for the industry, including the names they think will surprise Wall Street by taking streaming market share.

Plus, can China get its economy back on track and what role will AI play in its future growth? and meta heads to court again. You're watching Closing Bell overtime, live from the NASDAQ market site. Welcome back. CNBC asked media executives across the industry to give their predictions about the future of TV, including who could challenge the streaming giants, government regulation, why personalization will win. Alex Sherman's got all the details. Alex. Yeah, my colleague, Lillian Rizzo and I over the past few months, asked 10 media executives the same five questions to get a look at the variety of different answers among the people.

that are actually making the decisions at the biggest media company. So we asked them to talk about the rate of decline of the cable bundle. We asked them about a TV industry standard that will be different three years from now than it is today. We asked them about regulators, particularly about big tech and traditional media coming together, and if there will be some sort of massive move against that or a breakup. We asked them about sports rights, the improvement of sports rights that we're seeing year after year now in terms of ratings. And we also, for the fifth question, asked them about if there was one streaming service that doesn't either exist today or as small today that will become a dominant streaming service in the next three years. Take a listen to what some executives told us about that final question.

Look at Instagram's recent announcement about TV formats. So I think to your point, likely a service that we're not thinking of today, but it could be more broadly services that are here today and are expanding. the capability of how they engage and connect with audiences, as well as expanding those experiences. The real opportunity is for somebody who can pull it all together, to be an aggregator of all these different services, much the way that cable TV was originally created, to provide value and utility, to be able to provide a bundle of services at a discounted rate. I think that's the opportunity for a new entrance into the space. We see TikTok videos getting longer and longer, and I think that's,

That's a trend that will continue. And I also think that niche casting is also going to continue. And you will see lots of very small communities play very big roles across all of these services. So that's just the sampling of the answers. You can watch the entire video on CNBC.com with all of the answers from those 10 media executives. I mean, if I'm going to read between the lines, Alex, it sounds like, you know, Netflix has gotten a lot. more competition. They're already talking about, you know, competing with people's sleep for viewing time. Imagine of all these streaming services, even if some of them, only a couple of them,

actually, you know, come to fruition. This was Netflix's argument for why they felt like buying Warner Brothers Discovery would not be a problem with regulators. That if you take a look at the overall streaming landscape, it's not just the traditional streamers. It's YouTube, it's TikTok, it's Instagram. It's the unknown service out there that may become the most popular thing three or five years from now. So I absolutely think it's a strong argument that there is quite a bit of competition when it comes to what we all kind of see today as television watching. What is television watching? It's so much more than just traditional TV. I am surprised that none of them, or at least the ones that you shared, actually, you know,

mentioned AI as a driving force behind a new streaming platform that will exist in the future. You know, I was expecting more of that. Absolutely, Melissa. In fact, the one regret I have maybe is not asking a direct question about AI in this because I assumed that it would come up naturally and it didn't really. And I don't really know what to make of that. It may just be that it's not top of mind yet for TV executives. It may be just in the questions that we ask them or maybe that they just kind of still don't really know exactly how AI is going to take over the TV industry. I think it's a little bit behind in that way as opposed to other industries in terms of just its sort of obvious utilization in the years to come.

Although one observation, Alex, is that the answers you got, which is citing Instagram and TikTok, it's kind of AI by proxy in terms of how those things operate. And one of the takeaways I had hearing all that is they're kind of saying the next thing might be YouTube. I mean, it sort of sounds a lot like YouTube. Nish casting, long form as well as short, and all the rest. Obviously, it's more of a chaotic environment, but I do wonder if that's the big one that's already here. Yeah, I think so.

And so that was sort of the thinking behind the question that I asked about, are we going to see a regulatory crackdown in this sort of convergence between Silicon Valley and traditional media? It also, by the way, is sort of informs the answers of some other questions. One answer I didn't play for you, Jeff Zucker talked about how he sees more and more podcasts coming on to air and that he thinks that's going to be a trend in the next three years. We're seeing it on the margins, certainly. But this idea of the convergence between, you know, new media or the stuff that you're seeing on YouTube and old media, I think, is definitely a theme that resonates throughout all the answers. For sure.

Alex, thanks. And maybe that range of answers also explains the somewhat depressed valuations of a lot of these companies. I mean, Disney is as cheap as it's been in 15 years. Netflix has lost Supreme because people just don't know how this is all going to go. Right. I was actually surprised that nobody said there's going to be a platform where users can actually plug in what they want. Yep. And AI will feed them back a cartoon or a video or whatever is short form, whatever, you know, and that is the platform. The Me Channel.

Yeah, just like customizing for my, yeah, whether I can articulate it or not, that probably is going to happen. All right. Well, recently, the charts of Amazon and Invidia have been nearly identical, despite hypers and semis in general, tending to trade in opposite directions. We'll discuss why that might be. Welcome back. I always think it's worth investigating when two stocks who you don't think should move together actually do behave in lockstep. That's been the case for the last year of Nvidia and Amazon.

Now, Nvidia, semiconductors, they've mostly been working well at the expense of hyperscalers, the spenders and the receivers. Amazon, Nvidia, not so much. Now, Nvidia has really underperformed most of the other semiconductor makers. That's part of the explanation. I also wonder if it's sort of seen as just more of a general platform at this point. It's an ecosystem. It's not just sort of leveraged to the absolute high demand, accelerating parts of semis.

Here you see this divergence just developing over the last week. They were right at the same spot on a one-year basis a week ago. Then you got the Nvidia announcement about the financing last week and Amazon pullback with the other Max 7. Whether it's worth anything or not, the last couple of times you've actually seen them pull apart. They have reconverged in a couple of times to the benefit in the short. short term of Amazon. But what is the backdrop of the market's been overall when they do diversation? Yeah, that's a good question. So this was, basically, the market was doing very well up until that point right there. Right. And so then you have this pullback and it hits

Amazon a little bit harder. And then the bottom of the market was right here, obviously, and then they ramped together. So I think it's hard to generalize in terms of, you know, exactly what's happening on the macro level. But investor preferences find them both in the same spot. Yeah. All right. Time now for a CNBC News Update with Julie Borson. Hey, Julia. Melissa, Paramount is asking the states challenging its merger with Warner Brothers discovery to pay for costs associated with the delay in closing the deal. The new court filing, the company is requesting a $1.88 billion bond to be paid by the states against the merger. Paramount agreed to delay its proposed acquisition of WBD while the trial plays out, but it could end up paying $650 million per quarter in so-called ticking fees until the deal closed. closes. A New York judge has postponed the state's trial of Luigi Mangione after he pleaded

guilty to the 2024 murder of United Healthcare CEO Brian Thompson in federal court last week. Mangioni has pleaded not guilty to the state charges. On Friday, his lawyers asked New York to dismiss its charges, citing the state's double jeopardy laws. And Major League Baseball owners unanimously approved billionaire investors as the new owners of the San Diego Padres, Jose Feliciano and Kwanza Jones agreed to purchase the team from the Sidler family earlier this year at a record valuation of $3.9 billion. Back over to you. Thank you, Julia. Up next, what China's slowing economy could mean for Wall Street and China's AI race with the U.S. China's economy is under scrutiny after a slate of disappointing economic data for July. Industrial production, retail sales, and urban

investment all coming in lower than what was anticipated. Meanwhile, unemployment ticked higher to 5.2 percent. That's up from 5 percent in June. The weak economy comes at a time when the country's AI industry continues to push forward with cheaper and faster Chinese models making strides globally. The latest example is Alibaba's AI model, Quen, which hit 3 billion global downloads in the past six months and surpass meta and alphabet. Joining us how to discuss what is next for China is Dennis Unkovic, partner, Admire Unkovic and Scott. He's assisted companies with investing in China. He's also the author of the book, The Fragility of China. Dennis, great to have you with us.

Melissa, thanks for inviting me back again. How are you? It does seem like China, you know, it has a two-speed economy. It's got AI, exports are actually doing fine. But then on the domestic side, things are very weak. And it also seems like Beijing is kind of okay with that at this point. There's no huge stimulus plans or anything like that to rescue the domestic consumer. What should we make of this?

Great questions. The most important thing is, Xi Jinping has decided that if he's to stay in power and if China is grow, that he has to do it through technology. And he basically has been ignoring parts of the economy. For example, a third of the economy, the GDP is made up of real estate. It's been in the tank for the last five years. And the debt to GDP ratio, I don't mean to be too wonky here, but the debt that China has to its GDP is 300 to 100 or 3 to 1. As bad as we say the United States is really we're like 140 to 100. So the bottom line is, I think that Xi Jinping is making a big bet, and it's probably not a bad bet that he has to pull the economy through, increased

manufacturing, better technology, and that's the way to do it. Dennis, I mean, it's worked before and I guess the predictions that things will break in terms of the stability of China have gone unrecognized or unrealized before. I'm wondering in this. particular moment when we've seen China's massive stockpile of oil, for example, act as whether intentional or not, a stabilizer for global supply at a time when we had issues with the Strait of Hormuz. We had a report last week that there aren't enough ships for all of the EVs that China is exporting. It seems to me all this together means China will long-term remain a source of disinflation in the global economy.

I think you're absolutely right. Xi Jinping, in trying to put all of this together, has felt that in the long run, their ability to manufacture wasn't good enough 10 years ago. They had something called the Made in China policy that was put in 2015. What they wanted to do was stop manufacturing from this moderate level to the higher technology level. And that's why when he put the pressure on... Saving oil, I really think that the Chinese have a really good shot at moving forward much more quickly than I think some of the skeptics think they do.

And I've written a book called The Fragility of China, but you have to be honest. They really have done a good job in marketing what they have. Look at DeepSeek. Deep Seek is now much less expensive than many of the things out there. You can go online and use it, and it's open source, and it's much less expensive than the others. And I think technology is not going to be the full answer to the Chinese economy because they've got the real estate problems and they've got the debt problem. But they're moving ahead. And they are getting sort of the rest of the world hooked on these cheap components and the models, the cheaper models that they are producing for the AI race.

I mean, the U.S. may say now, no Apple, we don't want you to buy CXMT chips and we should be concerned about Chinese open source models. but the rest of the world are using this. I mean, to the point where semiconductor exports from China are adding 10 percentage points to total export growth out of China. I mean, it's amazing, Dennis. And so, you know, in terms of where China is positioned and how it's positioned here in terms of globally in the AI race, as we go into the meeting with President Trump in September, how much leverage does China have here? I heard today, Melissa, that the meeting's only one. day. So obviously not a lot's going to be done. But I think that Xi Jinping is going to put enormous

pressure on the president to say, lower the tariffs, or at least make these products. You mentioned Apple a minute ago. They want to buy the Chinese chips. I think there's going to be tremendous pressure on the president to do this. And I don't really see how in a global economy where the least expensive product, if it's relatively equal to the most expensive product, doesn't do well. And that's where I think the Chinese have put their finger on it, and at this point, look pretty good. Yeah, I mean, everything that we do to measure the AI model says maybe they're a few months behind, right? So this is something that's probably going to be certainly good enough and as a competitive pressure point for the rest of the world for a while. Dennis Unkevick, appreciate your time today. Thank you.

Thank you very much. All right, up next, Newberger's president-chief investment officer of equities weighs in on the recent market rally and whether you should be buying on any pullbacks. Closing bell overtime. We'll be right back. Earnings have helped power stocks to record highs with earnings rising more than 51% this quarter year over year. But can investors take the results at face value and project similar growth into the future? With us now to share his thoughts is Joe Amato, Newberger, president, and CIA of equities. Joe, good to see you. I'm going to guess 51% is a little much to ask for a run rate of earnings from here on out.

Pretty remarkable. But how are you viewing things? I mean, earnings have done a ton of the lifting for this market. obviously driven by very particular areas. What does it mean for, like, right now, for an investor looking to make changes to a portfolio? Well, I think you said that earnings really have been the story. And even when you adjust for some one-time gains, right, you're up 30%.

But at the same time, we have definitely seen a broadening out in earnings. Because if you look at the median stock in the S&P, earnings up 14%. So you've had a couple of good quarters now, and that momentum in earnings and that broadening out has really been I think the driving force in the market. And because earnings has been so strong, it's actually taken a little bit of the valuation anxiety out of the market, right?

When you think about multiples now versus where we might have been two years ago, worrying about, you know, multiples in the low 20s going to the mid-20s, well, now you're barely at 20. What's a good hedge to a portfolio now that is so exposed in so many different ways to AI? I mean, if you're invested in industrials, the top performers are leveraged to AI. If you're invested in energy, top performers are leveraged to AI. So what's a good hedge? I think it's a critical discussion that we have with clients because so much of the asset allocation mix is levered to the AI.

I don't want to call it a trade per se, but levered to AI and really U.S. tech leverage growth, if you will. But I think the broadening out themes continues to play, right? As you migrate from those AI enablers, which have really been driving this market into the AI adopters. Now, right now the market's not really clear on which companies are truly adopting and getting the margin enhancement from AI. But we're seeing it on a bottom-up basis. And I think that's really the way to hedge yourself against a little bit of that narrowness of the market over the course of the last few years. Now, if you want to talk about asset allocation hedge, then you get into bonds and absolute return strategies. But in terms of equities, I think that broadening out and looking outside the U.S.

Because earning story has been actually pretty constructive outside of the U.S. So you're tilting in that direction and in what ways that they implement that non-U.S. trade? So we've been most bullish about Japan. And, yes, lots of discussion about the yen currency intervention that's gone on a hero of the course of the last week or so. But the underlying strength and the, really, the shift from a deflationary economy to a more inflationary economy is an important shift. And then you have the corporate governance reforms in Japan over the course of the last, really, decade plus, as driving a higher level of return on investment. So the earnings tell when you're getting from that better corporate governance, I think, continues to be an attractive way to diversify.

your U.S. holdings. Now, Japan has a lot of exposure to AI for sure, which has helped fuel that market. But, but again, you have that same broadening out theme going on there as well. If the BOJ gets really aggressive, though, in terms of hiking in order to strengthen the yen, then does that threaten the gains in the stock market? I think if they get very aggressive, it's not their style. You know, even when they're not being on it, basically. It's like a doveish hike. But we think they're going to raise rates in September. We think they need to raise rates in September. I think that will will help, you with the value of the yen and not, you know, having that yen deteriorate too quickly.

But really, it's, you know, I think that underlying long-term trend of better earnings growth there, that's the attractive element. There's been a lot of focus within the U.S. market on the negative beta stocks, right? So there's more stocks than ever that have been moving counter to the S&P 500. Like one-eighth of all stocks. Sometimes it's energy, sometimes just pure defensives. Is the market telling us something with any of that? If it's in fact, you know, simply does not want, for example, the traditional low volatility names, except when the S&P 500 is actually for sale?

I think it reflects the momentum and the excitement people have around what Melissa you referenced earlier, this sort of AI levered trade that is going on that is going to be extraordinary. I mean, the super cycle in AI is extraordinary, right? and that's going to continue for a number of years, given the amount of CAP-X that's going in. But there are, you do see these days where the momentum shifts from one to the other. And, you know, as a market observer, you know, people can get frustrated by that because you see, you feel like it's whipsawed a little bit. It's the mechanics of it. But you know, whether it's levered ETFs, whether it's short-dated single-stock options, a lot of retail flow is fueling that momentum. And when those shifts happen, they happen pretty powerfully.

Joe, we got to leave it there. Great to see you. Thank you. Joel Mado of Newberger. All right. Well, for more on this earning season, why some companies may be over-earning or even the market as a whole, be sure to check out my new weekly

Market Memo newsletter, featuring analysis of key market themes and exclusive commentary from top traders and investors. You can subscribe at cnbc.com slash market memo. Astronomical consequences. That's what some people are saying.

I was busy signing up for your newsletter, Mike. I appreciate it. Yeah, I saw you trying to get the QR code there with your phone. Could be facing when a social media addiction trial begins tomorrow in California. Details straight ahead. Welcome back. Meadow, one of the worst performers in the S&B 500 today. I had tomorrow's opening arguments in a court case alleging the company designed its social media platforms to become addictive to children and teens. Julia Borson's got all the details. Hi, Julia. Melissa, this trial with the opening arguments starting tomorrow is the highest state's test yet of youth safety.

allegations against META because it's several states coming together for what's being called a bellwether case. Harvard Law School professor telling me to just today that this outcome has huge implications, not just for liability in this case, but also what else META could see in related suits across the country. California Attorney General Rob Bonta was out with a statement ahead of tomorrow's opening arguments saying, quote, exploiting our most vulnerable residents to boost corporate profits is not only morally wrong, it's also.

illegal. Meta said in a filing, the damages could be as high as $1.4 trillion, which is close to its market cap, but just as potentially damaging, the states are asking for big changes to meta's algorithm, including eliminating features such as infinite scroll and notifications, asking the court to make meta-prioritized content focused on well-being instead of engagement, asking Meda to implement age restrictions and time limits for younger users. Meta-Co, Mark Zuckerberg, and Instagram head Adam Most are both expected to testify that we're not sure just when yet, when they will be testifying yet. Back over to you. That 1.4 trillion number seems really unlikely, Julie, but I'm wondering

if any analysts have tried to put a figure on, for instance, what eliminating infinite scroll could mean to the business. Look, I think something like that is pretty hard to calculate. I do think it's worth noting that that was a number that meta put out there, whereas the states themselves had a different number. They said it would be about $200 billion that they were looking at. Either way, the... These are meaningful amounts of money. It is worth noting that in its most recent earnings, META said that it had $2.4 billion in legal costs, legal fees and the like.

And so this is clearly a costly battle for META. We'll see how distracting it ultimately is for Mark Zuckerberg's goal to make META a leader in AI. But really an existential moment for META to get through, not does this trial, but the other related trials that are going to be happening this year and next year across the country. Yep. Julia, thanks. Julia Borsson. We're showing meta shares down 27% on a one-year basis. It's down 3.5% today.

It's a little tough to separate out exactly how much of it is from these types of concerns. It certainly can't hurt, but you did have Microsoft also down 3% today, but I guess it must change the total equation in terms of what you think their platform can earn over the very long term. All right, that does it for overtime. That's when he starts right after this quick break.