Closing Bell - Closing Bell Overtime: How Today’s AI Summit Will Shape The Industry; Arm’s IPO Prices; Air Force Secretary On Geopolitical Threats 9/13/23

Episode Date: September 13, 2023

It was a mixed session for stocks with the S&P 500 and Nasdaq bouncing back from Tuesday’s losses. BD8 Capital Partners CIO Barbara Doran and Morgan Stanley’s Seth Carpenter break down the market action. Pricing for ARM’s IPO is expected to come in above the range; Moor Insights & Strategy CEO Patrick Moorhead on how much growth the company could see in the coming months. Morgan sat down with the Air Force Secretary and Anduril’s CEO to talk China and the economic impact of a possible government shutdown. Google Brain Co-Founder Andrew Ng breaks down today’s big AI summit in DC as leaders like Elon Musk and Sundar Pichai briefed senators on the industry and possible regulation.

Here's your scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan, and AI leaders are meeting this hour in Washington as the Senate hosts its Artificial Intelligence Forum. We will talk about the regulations that could come with former head of Baidu AI, Andrew Ng. Plus, we'll break down today's hotter-than-expected inflation print and what it means for the Fed when we're joined by Morgan Stanley Chief Global Economist Seth Carpenter. We begin this hour, though, with breaking news, as one of the most hotly anticipated IPOs of the year is expected to price this hour.

Leslie Picker has the latest on what to expect from ARM. Leslie. Hey, Morgan. Yeah, I've been chatting with investors really all day, getting kind of a mixed read at this point. Bankers have communicated to them that this one is oversubscribed. So that's a good sign for demand. But the question is, and this is really important here, at what price? It may not make sense to be too aggressive, although it's likely that they price at the high end or possibly above. The high end of the range implies a valuation, though, of $54.5 billion on a fully diluted basis. And that's about double on a price-to-earnings relative value

compared with Arm's chip designer peers. And there are some other risks out there surrounding the overall size of the deal, the subdued performance of other SoftBank-backed IPOs, the potential overhang from secondaries as SoftBank continues to sell down its stake, and the obstacle arm faces to be added into the major indexes. So those are just technical obstacles. Corporations such as Nvidia, AMD, Apple, Intel, Google, and Samsung have indicated interest in buying $735 million worth of the float. That leaves about $4 billion for everybody else. Now, the shares will

be listed on the NASDAQ under the symbol ARM. They're expected to make their debut tomorrow after we get the final pricing tonight, guys. All right. Leslie Picker, eager to see if we get that pricing tonight because that's going to be important. Hopefully we see you in just a little bit. Let's talk more about ARM and the IPO when we talk the market action right now. It was an up and down session after a hotter than expected core inflation print this morning. Joining us to break it all down is BDA Capital Partners CIO Barbara Duran and Morgan Stanley Global Chief Economist Seth Carpenter. Barbara, I'm actually going to start, talk a little bit about the market action today, but do you buy a lot of IPOs? Because ARM is coming in the morning, probably. Would you ever buy one after the open on the day

of if you didn't get an allocation? I would actually, you know, if they price it well, and I believe in the stock and you think it's going a lot higher a lot sooner, I certainly would buy in the aftermarket. I think ARM is a very interesting one. There's a lot riding on this deal. And it's not just, you know, raising money for the company, but it's really about the IPO market in general and tech IPOs specifically. And as you know, this has been very anemic in the IPO market since 21, when we had record issuance with nearly 400 IPOs, 150 billion raised. This year, it's 63 IPOs in the first half of 10 billion raised. So it's really important that they get this right. And Leslie just did a very good job of outlining, you know, all the questions about the stock. And so that we know would be incorporated

into the pricing and also looking at demand from institutions because you want that demand there to underlie the stock. So it's very important they get the pricing right. But yes, I would buy if I believe that there was more, that the stock was never going to look back on the pricing. And we'll see on the pricing because this is a high quality, low risk name. They've got more markets to go into. And it's really, it probably deserves a very much higher multiple than its growth rate would seemingly justify because of that stability. Okay. Sounds like you have a somewhat positive take, Seth. It's coming to market in this environment where investors are concerned about the Fed and concerned, the Fed is concerned about inflation. The CPI number this morning wasn't far off expectations,

but maybe a little hot. What do you think it means? Yeah, just a little touch stronger than we were expecting, especially on the core number. I think everyone saw the rise in gasoline prices for headline. So what does it mean? If we break down the components, we still have negative inflation for consumer goods.

We still have a downward trend for rent inflation. So what I think it means is the trend that we've been seeing and that we've been calling for, you know, all year of disinflation that's going to make it easier for the Fed to call it quits on the rate hikes. I think this trend sort of kept us on that track. So our baseline view is the Fed's already done with their hiking. Okay. Barbara, your thoughts on this? I mean, especially with CPI today, it kind of seems like there was something for everyone here, the bulls and the bears, which perhaps explains why the S&P closed fractionally higher and the Dow fractionally lower today. Yeah, no, I agree. I've happened to take a bullish take on that. And I agree with Seth

because I look at the core CPI and what's happened over the last year. And if you remember in September, it was 6.6 percent, stayed above 6 percent till December when it dropped below. Then for four to five months, it was at 5.5, 5.6. And then in June, we saw it drop below 5 percent. And since then, it's been 4.8, 4.7, 4.3 percent for August. The trend is very clear and it would be surprising if that did not keep going down. Now, the Fed is likely to stay higher for longer because it is so gradual and seemingly incremental. You know, but, you know, we're seeing still a very strong economy with some slowing in job openings, some slowing in wages. But it's very encouraging that the inflation numbers will continue. OK, we've got some breaking news. So our panel, please stay right there. Kate Rogers has the details at Starbucks.

Hey there, Morgan. That's right. We do have some breaking news on Starbucks. Howard Schultz will be stepping down from the Starbucks board of directors effective today as part of a planned transition, the company says. Schultz stepped down as CEO of the coffee giant in March as Loxman Narasimhan took the reins. He had most recently served as chairman, emeritus, and director. Starbucks is also announcing the election of Wei Zhang to the company's board, adding a ninth seat. Zhang most recently served as a senior advisor to Alibaba Group and president of Alibaba Pictures Group. That experience, key here because China remains a very important market for Starbucks. It is its second home market with more than 6,000 locations today.

Now, reflecting on his 41 years with the company, Schultz said in a statement, quote, I am enormously blessed to have experienced this journey from the ground floor at the company these many years. I look forward to supporting this next generation of leaders to steward Starbucks into the future as a customer, supporter, and advocate in my role as chairman emeritus. Schultz returned to Starbucks, remember, for a third stint as CEO after Kevin Johnson retired in 2022, but had said this would be short-lived and he would not be back after this one. So it looks as though he is fully stepping away from the company that he has been with for more than 40 years. So certainly end of an era here. Remember, he came back as the union back and forth was really ramping up.

That was key in that, was key in search for this new CEO in Nirasaman, who's been leading the reins of the company since this spring. So certainly a huge transition for Starbucks. Guys, back over to you. A huge transition, but you said a planned transition, and it sounds like it's coming six months like clockwork after the CEO succession. I'm just curious, though, it's been a revolving door in terms of chief executive role for Schultz, but this is his baby Starbucks. Has he been on the board straight through? I believe so, Morgan, but everyone had been talking about, you know,

would he really step away this time? Because remember, as we said, the third time coming back, he was in charge before Kevin Johnson came on, then he came back to lead as Johnson stepped away. So there's been certainly, as you said, kind of a revolving door, a lot of back and forth. He has kind of been the steady hand the entire time. So certainly now saying he's kind of stepping into retirement, going to focus on his Schultz Family Foundation, his wife,

some of the entrepreneurial work that they do with that foundation. And, you know, of course, will always, I think, very much care for and be involved in his own way with Starbucks, but now stepping away from the board. So a very different role here. OK, Kate, I'm looking at the chart and Starbucks is pretty much trading where it was four years ago in the summer of 2019. What's the big challenge for leadership post Schultz? What's the what's the problem they've got to solve? You know, John, it's a great question. So sales in the U.S. in the most recent quarter were still strong, but they were a little bit softer than anticipated. China, we saw a huge bounce back. But that market, as I said, second home market, it has had quite a few hits over the last few

years with COVID and the lockdowns experience there. It's a huge business segment for them. Same store sales, if I'm recalling correctly, were up more than 40% in the most recent quarter. So that market will be key. U.S. market, of course, key. Changing consumer dynamics, how much consumers want to spend on coffee seems to still be very strong here in the U.S. And you can't forget about the union battle and back and forth. It's certainly a smaller, smaller piece of the puzzle, but that's not going away, right? And that's an issue that Schultz was kind of brought back into, I think, work on. Remember, he testified before Congress about that union back and forth. When he came back, Bernie Sanders had him up on Capitol Hill to talk about what was going on with that. So I think we can't forget about that. It is an important

piece of the story, too. Okay. Kate Rogers, thank you. Shares are trading lower right now. Let's bring in Nick Satyan from Wedbush. Reaction as the stock does pull back on this news. Nick, do you see this as the end of an era for Starbucks? I guess what's what's what's the bigger news here? Schultz stepping away and actually retiring officially or the fact that they've added another board seat, which really signals even more focus on China? Well, I mean, I think this wasn't too surprising. You know, once he stepped down as a CEO, you know, we all expected that he would also step down from the board at some point. You know, the question is that, you know, historically, when he has left, Starbucks hasn't performed very well. And so that's what, you know, some of the nervousness is around

in the context of, you know, the first quarter's, you know, some of the nervousness is around in the context of, you know, the first quarter's, you know, miss in a number of quarters last quarter in terms of the U.S. comp. Now we have potentially a slowdown in China. So there's some risks there as well. And so the question now is, you know, can the new CEO, Loxman, you know, outperform expectations going forward? Nick, if I look at, say, McDonald's over the last four years or so compared to Starbucks, it's just the chart looks a lot better. It's done.

And it's sort of that, you know, get your coffee and maybe food in that case option for a lot of people. It's on a lot of corners in America, certainly, and around the world. Is this just Starbucks was going so strong and it was getting a serious valuation boost before and that's reset? Or are there stronger options out there as far as how they've been performing lately? Well, you know, frankly, I think the one thing that's being underestimated around Starbucks is the value offering around food. And so I think there's, you know, as food has grown as a percentage of sales, if you look at the price points there, they've actually done really well. I think that's part of the reason why we've seen positive transactions within the U.S. business. You know, over the recent past, I wouldn't be

surprised if we didn't get, you know, positive transactions going forward. So, you know, I'm actually, you know, relatively optimistic that Starbucks will be fine. You know, McDonald's has outperformed Starbucks in terms of fundamentals. So that's why you've seen the share price performance versus Starbucks, you know, including with respect to transactions. But I wouldn't count Starbucks out either. Okay. Nick, thank you. It's an important moment to mark, and let's get back to our panel. Barb, consumer discretionary, this is a brand that everybody knows,

but there's questions about the consumer strength heading into the end of this year, the beginning of next. How do you treat Starbucks? Well, I have a core holding in Starbucks, so I'm a big fan of the stock, and it hasn't done much lately. And frankly, I see his stepping down as a vote of confidence because he has come back when times are tough. He's stepping down at the same time they're bringing in an Alibaba executive who presumably is on good terms with the Chinese government

because the Chinese market is a huge one for them, and they are really been upping their game. So I think in terms of the consumer discretion, it is a question of what is going to happen to the consumer over the coming months. And I still think you have to look at employment, which continues very strong. Wages are moderating. People still have savings, even though excess savings have come down dramatically. As someone pointed out today on one of the shows from, you know, two trillion to five hundred million, you still have savings of about 45 percent higher than they were pre-pandemic. You know, and if you look at even there's people are sending the alarm on credit card debt. Well, credit card debt. Yeah, I was just hearing that arm pricing might be happening. But go ahead for for a moment. We'll bring you

that as soon as we have it for sure. Yeah. No, I was just saying the ARM pricing might be happening. But go ahead for a moment. We'll bring you that as soon as we have it for sure. Yeah. No, I was just saying the alarm over credit card debt, I think, is overblown. I mean, it's still 2% to 3% less than it was pre-pandemic. So I think the consumer is in good shape, and they'll continue to spend on things like Starbucks, which really is a very affordable discretionary item. You can feel like you're treating yourself very low. Barb, thanks for that. And we do have arm pricing. Hold on just a moment. Leslie Picker,

what do we have? Hey, John. Yeah. Pricing above the range. This is according to a person familiar with the matter. That would imply $52 a share in an offering size of about $5 billion and a fully diluted valuation of $55.5 billion. So very solidly the largest IPO we have seen in years. This arm pricing coming above the range by about a dollar. As we told you, this one was oversubscribed many times over. They decided to price it at $52 per share. This on a relative value, of course, is still about double that of their peers, but lower than where SoftBank valued this company just last month in a round that they did buying back some of the stake in ARM from their Vision Fund. So $52 a share for this one. We'll

see what happens when the stock begins trading tomorrow. Listed on the NASDAQ, Morgan. All right, Leslie Picker, thank you. And our thanks to the panel. A lot of breaking news here to kick off the hour. Let's bring in senior markets commentator Mike Santoli at the New York Stock Exchange. Mike. Yeah, Morgan. So it sounds as if the bankers, the underwriters were able to be slightly on the aggressive side about the valuation they were able to get for ARM. Clearly, there was demand at the fifty two dollar price, probably worth a reminder that one of the reasons people clamor for IPOs and hope that they get a discount is the performance isn't always all that great once you get out there. So you have these are the biggest IPOs so far

of this year. Basically, Kava, this is Savers Value Village. And then Canview was a spin out of Johnson and Johnson. But I think the point I wanted to make, and it doesn't really come through because of Kava's numbers coming off of this, is they're all way off their highs. So essentially, all three of those IPOs relative to the market have actually lost you money point to point. And they are, you know, also had a little bit of a pop afterward as they got excitement out of them. So a big picture, IPOs actually underperform the market over the longer term for buy and hold. But you do have isolated, enormous winners that clearly become the blue chips of tomorrow. And therefore,

they kind of pay for the rest. You have to almost have a venture mindset about it if you're not just going to be flipping it on on day one. I do want to take a quick snapshot of the S&P 500 as well, which does show us kind of mired again right here in the middle of this late summer range. And it's also kind of compressing right there. You have this sort of triangle there, higher lows since the mid-August bottom, but then also this downtrend from the peak. So where it will resolve, unclear. I did want to show this right here. That's exactly one year ago, September 13th last year. It was a CPI day.

8.1% was headline CPI. Market just cracked right there into the October lows. Clearly, the environment has changed a lot. Inflation seems like it's back on a more manageable path. The question is, how's the economy going to do after what the Fed had to do to treat that inflation problem last year? Yeah, I mean, that's a great chart right there. But I do want to go back to the IPO piece of the puzzle, Mike. And it reminds me of the conversation we were having with Roger Altman a couple of days ago, where with ARM, for example, the stakes are very high tomorrow for a number of

reasons. But it isn't just about how these IPOs themselves trade. It's also about how the markets are behaving in general and how they accept these new companies into the market. So I'm just curious, the underperformance we've been seeing in some of the names that have gone public more recently, is that a reflection of where they were priced at that moment in time, or is it a reflection of the broader market? Well, it's a reflection of one of a really small sample size. There's only been a few deals that we of any note, and so therefore they're going to get magnified. The second piece of it is it's been a tough environment for untested companies of any type. If you see what's outperformed this year, it is the ultra predictable, huge, multi, you know, 100 billion dollar great balance sheet companies.

That's not really where we're talking about some of these newer concepts, especially on the consumer side. So I think you have to have more deals test the market to really make an assessment as to whether the capital markets are, again, you know, kind of the blood is flowing through them in a healthy way or not. I think in general, we can take it. You know, volatility is low. Valuations are relatively, you know, generous, I would say at this point. So you'd like to see other companies tested. And I will say on the fixed income side, capital markets are operating very, very well, corporate debt and all that. Yeah, this will be an interesting one, a full-grown company coming back public. Mike Santoli, thank you. After the break, we will talk much more about ARM and the one big question mark for investors deciding whether to jump in or not.

And later, the big takeaways from today's AI summit in Washington, including why Elon Musk says regulating AI could determine the future of civilization. Overtime is back in tune. Welcome back to Overtime. If you're just joining us, it's already been a busy hour of breaking news. Starbucks founder Howard Schultz saying he will step down from the company's board effective today. Shares down a little less than 1% on that news here in overtime. And Arm, that's the chip designer, is going to price at $52 a share, a source tells our Leslie Picker. So let's talk more about Arm. This is the design of chips that are used in just about everything, certainly mobile, from iPhones, all other sorts of phones, laptops increasingly, because Apple is now using ARM to design its own

chips, smart TVs, et cetera, starting to move into data center. But being in everything means where's their opportunity? Well, data center, but where else? Can they move into AI and actually build unique designs and technologies that they can charge more for? Because in part, they've gotten so big by not charging a lot for licensing and royalties. Well, joining us now to help you figure out whether you should invest, what the growth prospects are, Patrick Moorhead, CEO of More Insights and Strategy, also a former corporate vice president and corporate fellow at AMD's strategy team, where I first met him, Patrick. Good to see you. So Arm is coming public again. It looks like they're pricing above the range.

What do they have to do to grow, though? Yeah, John, thanks for having me on again. So ARM has already laid a lot of the groundwork for its future growth. I mean, before SoftBank bought them in the data center market, they really weren't anywhere. And they took the investment from SoftBank to invest in that heavily. And now we have folks like Amazon, likely Microsoft, and Google likely coming online with them as well. So they've laid that groundwork. I think organically, you're going to see them in other growth markets, XR, when that's going to break out, who knows? It's going to be there. The only question is when. And then they also laid the groundwork the last five years for the automotive market, where content for electronics are upwards of 10x of where they are. And I see ARM is playing a key role in that.

But how do they get more than pennies out of that? Their architectural licensees, the Qualcoms, the Apples, are doing amazing things, making lots of money on top of the technology. Their strategy for a long time, you know, had been, OK, well, we're going to start doing some of that in graphics and other things on top of that. But I don't see them getting the full benefit yet. Yeah, they aren't yet. And that's if you look at the markets that we, you know, I pointed out automotive and and even for that matter, the data center, they need higher degrees of market share. What they have put though in, for instance, in smartphones, total compute solutions. And that's also the play that

they're running in PCs. And I expect them to run that in other markets where it's not just, let's say, an architectural license. It's 10 different contracts and also that's tested on software and all the way down to the foundries like TSMC and IFS and Samsung where they can charge a whole lot more for that. Now, the benefit to the customer is they have a much faster time to market. This latest program that Arm brought out in the data center

can shave off nearly a year of development of where they were. So that's how I see them going after this. Okay, so you've laid out the possible levers they can pull and growth prospects. $55 billion valuation, priced at $52 a share before it starts trading publicly tomorrow. Does this valuation make sense? So from my vantage point, I look at the comps and I've seen the discussion around companies like On Semiconductor and other. I mean, it seems fair. I mean, the market has this incredible opportunity to nail value. And I think once arms shows even greater degrees of

traction in those growth markets, I can see them going well upwards of this number. OK, we'll see how it goes. Patrick Moorhead, thanks for previewing it with us. Thanks. When we come back, we'll hear from the outspoken secretary of the Air Force about his sobering warning on China and what he makes of the Elon Musk drama surrounding Starlink and Ukraine. And later, we will bring you the latest on the United Auto Workers negotiations with Detroit's Big Three, with just one day left to negotiate ahead of a potential strike. Overtime, we'll be right back.

Welcome back. This week, I spoke with the Honorable Frank Kendall, Secretary of the U.S. Air Force, who joined me from the Air Force Association's annual Airspace and Cyber Conference. I asked him about China. Well, for over a decade now, I've watched what China has been doing to modernize its military. And it's been fairly clear to me that they're designing a force with the intention of having the ability to deter and, if necessary, defeat U.S. intervention in the Western Pacific. They're basically creating the assets that they need to come after what they perceive as our vulnerabilities. So what does this mean for the Air Force in terms of the strategy moving forward, the need to modernize the Air Force, the need to be able to counter China?

That's right. And my focus initially on coming into office two years ago was on modernization. It was on getting to the next generation of capability so that we could be more competitive. And we spent a lot of time analyzing the operational problems we had to solve. And we put a lot of the analyzing the operational problems we had to solve. And we put a lot of the work that resulted from that into our budget that's currently awaiting passage by the Congress. And I do want to get into the budget outlook with you just a little bit more. But first, in terms of China, if China were to, say, invade Taiwan or impose a blockade on Taiwan, is the Air Force and more broadly the U.S. military in a position to

counter that right now? We are, but there's more operational risks than I would like to see. We have a very capable military. No one should underestimate either the will or the capability of the U.S. military. It would be a tragic mistake, I think, if China were to do the types of things you just described. But they are actively seeking the capability to be effective against us and to defeat us if possible. And we can't be idle while that's happening. We have to respond. Now, you did just mention the budget. There's certainly the uncertainty looming over Washington right now about the possibility of a partial government shutdown or more likely a continuing resolution. Even a lot of talk, at least among the analyst community, that there is a rising risk of an extended continuing resolution. Why would that be

bad for the military? That would be devastating. All CRs have a very negative impact. They're very inefficient. They delay modernization. It's very important. They delay increases in programs that are going into production, for example. And they make it very difficult for us to plan and to move forward. Secretary Kendall also urging Congress to move forward on the 100-plus senior officer nominations that have been frozen by Senator Tommy Tuberville. The budget uncertainty, though, has been a weight on defense stocks in general this year. Northrop Grumman, Lockheed Martin, L3 Harris, General Dynamics, and others, all down double digits year to date in part because of that.

But we also discussed SpaceX, since the revelation that year to date in part because of that. But we also discussed SpaceX, since the revelation that Elon Musk refused to allow use of Starlink service by Ukraine in a surprise attack on Russian forces last fall did cause some public controversy. Now, it's important to note SpaceX wasn't under a military contract at the time. It had been providing terminals to Ukraine for free. That's since changed. The Air Force works closely with SpaceX, for example, on national security launches. The Air Force works closely with SpaceX, for example, on national security launches. The Air Force and the Department of Defense in general rely on contract arrangements with business, executable and enforceable contracts.

As you mentioned, at the time, SpaceX made some unilateral decisions about what to do for Ukraine. They were not on contract to the U.S. or to Ukraine. I think they were at that point donating their services, essentially. So they had discretion. We write our contracts to basically ensure that we can get the services we need as expected from them. And those, again, are enforceable contracts. So whatever the business arrangement may be, whether it's individual ownership or a publicly held company, we write agreements with those businesses that get us what we need at a reasonable cost.

So this notion that whether it's through Starlink with connectivity capabilities or whether it's through launch with SpaceX's rockets, this notion that the company has become a key player, a very important, this idea that Elon Musk is calling the shots on a lot of things that could be tied back to government operations. You'd bat that down? SpaceX is an important supplier to the government, launch services, and we do buy some communications capability from them and so on. But we do that through business arrangements that we can enforce.

So the Air Force is working on everything from nuclear modernization to next-gen fighter jets, even unmanned aircraft, as the service looks to use more autonomous capabilities and AI, something else we talked about. The Defense Department, more broadly, though, recently unveiled its replicator initiative to bring thousands of drones and other autonomous systems into the force in the next couple of years. It's something I discussed with a contractor as well, Andrel Industries, CEO Brian Schimpf, as that defense tech's upstart displayed its new Fury drone at the same conference. The unmanned aircraft is part of Andrel's latest acquisition of Blue Force technologies as the startup continues to expand the capabilities

it can offer to the government. Our belief from the beginning has been that the DoD needs to look at autonomy and autonomous systems as the only way we're going to be able to have the capabilities we need to fight against Russia and China. There's no way we're going to outbuild them on manned systems. We can't afford it. It's just too expensive. So autonomous systems have to be a big part of the equation, fielded in the thousands. The Fury aircraft itself is the most mature and compelling platform we've seen in the whole space for what is needed to fight in the Pacific at the ranges you need, the capabilities you need. And it's very much moving us into these higher-end DoD systems that are critical for us

really succeeding in the long run, both as the U.S. and as Anduril. So Anduril is investing its own money to develop Puri. Schimpf telling me that he's, quote, hoping to fly this just around the corner. But for more on what was a very wide ranging discussion with the Air Force Secretary, Frank Kendall, check out my Manifest Space podcast, which will have the full discussion starting tomorrow, John. All right. So interesting, the point that Starlink not under contract there. It puts it in a different light. Up next, Mike Santoli returns with a look at why the current bull market, which is approaching a one-year birthday, might not be so impressive.

And take a look at 3M as we head to break. By far the biggest loser in the Dow today after the company's CFO warned at a conference of a slow growth environment in 2024. Stock finished down about 5.5%. Stay with us. Welcome back to Overtime. The current bull market began almost exactly a year ago, which means the comps are going to get rough from here, but it's been a fairly unimpressive one compared to other historic runs.

Let's bring back Mike Santoli with a closer look at the charts. Mike. Yeah, John, what will probably be determined to have been a sort of cyclical bear market of 2022 ended about 11 months ago. This is the average cyclical bull market that 2022 ended about 11 months ago. And this is the average cyclical bull market that follows one of those downturns. This is from Ned Davis Research, which I also owe the title to. And you see that the current one, which is in white, is really underperforming the average. It also is in line with some other of the weaker first year bull markets of the past, one that began after the crash, the stock market crash

of 1987. This one here started in late 1971. I think a couple of reasons for that. One is we didn't really get a true washout in valuations back in October of last year. It was a kind of a higher base from which we we climbed. Also, of course, rates going up. The Fed is still tightening. We're at perhaps the latter part of the profit cycle, or at least were. So all those things boil together, say we haven't really built up that much of a head of steam. For what it's worth, this bull market continued well on a couple of years after the first year. This one was almost done after that one year mark, Morgan. All right. Mike Santoli, thank you. Little bulls.

Elon Musk was one of the many high-profile tech CEOs at today's AI regulation hearing on Capitol Hill, telling CNBC's Eamon Javers just how momentous the meeting was. I think something good will come of this. I think this meeting may go down in history as being very important for the future of civilization. Up next, the co-founder of Google Brain weighs in on how potential new AI regulations could impact the fast-growing industry. Stay with us. Welcome back. We are following at least two breaking stories this hour. Starbucks founder

Howard Schultz stepping down from the company's board as effective today as expected. Taking his place will be a former senior advisor from Alibaba. And Arm, the chip design company, has priced its much-anticipated listing at $52 per share, a source tells R. Leslie Picker. That's above the expected range of $47 to $51. All right, well, some big AI news today. Tech leaders, including Sam Altman and Senator Pichai on Capitol Hill, talking with senators about the industry. Elon Musk spoke with Eamon Javers about the need for regulation. It's important for us to have a referee, just as you have a referee in a sports game or all sports games, and that the games are better for it to ensure that the players obey the rules, play fairly.

I think it is important for similar reasons to have a regulator, which you can think of as a referee, to ensure that companies take actions that are safe and in the interest of the general public. So what could regulation look like? Could it happen? Joining us now, Andrew In. Andrew is one of Time 100 most influential people in AI, is the founder of education company Deep Learning AI, current professor at Stanford. He is also the former chief scientist at Baidu

and a founder of Google Brain Project. I mean, who better to speak to about this than you? Incredible. Do you agree with Elon Musk? Is what's needed here a referee? I think regulation is an important role to play, a referee to enable benefits and also protect us from harms. But candidly, looking at what's been happening in Washington, D.C., I'm very concerned about the approach the government is taking. It feels like we've been having hearings for years without that much thoughtful regulation passed yet.

I'm confident the U.S. will figure it out eventually, but it feels like it's been taking a long time. It does feel like, once again, what was coming out of this hearing today is this notion of there needs to be safety, there needs to be transparency, but we also can't stifle innovation. Do you think lawmakers have their arms around the technology

and the trajectory of the technology? It's very clear that lawmakers do not. In fact, in terms of policy proposals, I think we have an urgent need for better AI transparency. If we look back over the last decade at the bad things that happened with technology, like Cambridge Analytica misused Facebook user data, we often did not find out about those things

until years later, where maybe by luck, a whistleblower, an academic kind of let us know about it. I think at this moment, I'm speaking to you from Silicon Valley. I'm hearing occasionally disturbing things about what some companies are doing that I think will be harmful, but we just don't have that transparency regulation to even let lawmakers figure out what's actually going on so that we don't have to wait five years and hopefully only then find out what's actually going on. And then at that time, try to pass regulations. A lot of people, Andrew, are going to say, good to see you, by the way, it's been a while, are going to say these are trade secrets, what's inside the box and how AI is making decisions. So what do you see as really

the most immediate danger from AI and what might give a signal that there needs to be more forced visibility into how some of this is happening? Here's one example. There have been rumors that foreign powers may be buying ads to influence American citizens' view on the war in Ukraine and our support or lack of support for it. Today, are we able for regulators or for scientists to go to, say,

social media companies and ask, in this state, people of a certain demographic, how many were shown a paid ad that was pro or versus a certain position on a politically sensitive topic? We just don't have that data today. And this means that we don't have the signals to figure out where the problems are. I think that this technology, AI transparency, can be built in a way that preserves privacy of individuals and will finally give governments and really society at large visibility into what's going on so we can pass thoughtful regulation.

But until that transparency, I think it'd be very difficult to actually know where are the real problems and how to regulate. Andrew, I don't want to sound like a conspiracy theorist or anything like that, but can we trust the government? I mean, you look at how partisan things are and even how candidates try to use social media for their own ends as it is making questionable claims. Is there some structure that you have in mind that would prevent perhaps swings in how this gets treated

from administration to administration? You know, was it Winston Churchill that once said that democracy is the worst possible way to run a country, except for all of the other alternatives? So despite all of the problems in the U.S. government, I'm glad that most years we feel like we're in a relatively well-run democracy. I don't think I know how to solve many of the problems of the country, but AI, which I do know, I think that transparency so the government can actually figure out what's going on, which I'm absolutely sure government does not. And you do not figure out what's going on only by talking to tech CEOs and a few academics. I'm very confident that we need a better picture of

what's actually going on in AI rather than only hold hearings, which is a good step, but it's definitely not enough in terms of... Oh, and I think if you want to be a publicly listed company in the United States, you have to make all sorts of financial disclosures. And sometimes companies wish they wouldn't. And part of me feels like if you want to be an AI company and serve hundreds of millions of users, it might be fair to require certain AI transparency disclosures, just like financial disclosures have made the stock market and financial system much more robust. I think we need that for AI. You touched on it a little bit with one of your examples earlier in the conversation, but the fact that this technology, this capability as it evolves is also one that has geopolitical implications too. I mean,

you've worked for US companies, you've worked for U.S. companies. You've worked at a Chinese company. The counter to regulation is the concern that on the world stage, if you regulate too heavily here in the U.S., it's going to stifle innovation and allow other countries to lead where the technology is concerned. Your thoughts? It does make me wonder if transparency stifles innovation. Boy, that seems strange. I hope the transparency can build trust and enable innovation. There's one thing I was encouraged by

in terms of U.S. regulations. I feel like we've been slow in terms of sorting out what are the actual harms. I don't think human extinction is a real thing. It's a very big distraction. But I think there are other harms

that we should think about. But one thing I'm encouraged by is the U.S. starting to spend more effort to put in place thoughtful industrial policy. For a long time here in the U.S., we've mainly let the free market guide the course of the economy. And that's actually worked out really well.

But in today's chaotic world, I think there is an increased need for industrial policy, for the U.S. to make smart investments to drive forward AI innovation. And I do see, you know, I think we need some time to build the muscle to make sure where we allocate dollars is well spent. But I see worthy progress on that, and that I hope will keep on doing. Yes, well, it will be nice to take human extinction off the table. Andrew, thank you.

Thank you. Andrew. Well, there's just over 24 hours until the expiration of the United Auto Workers Union contract. Up next, we'll get the latest on the negotiations, whether it looks like there could be a strike. Plus, we'll tell you why airline stocks fell today and fell hard. If that downturn is likely to continue. Welcome back. Airline stocks under pressure after a trio of profit forecast cuts. And auto stocks are higher just hours before the expiration of the United Auto Workers contract. Phil LeBeau joins us with the details of those closely watched stories doing double duty here.

And Morgan, let's start with the airlines. And two that got the most attention today were the two stocks that took a lot of pressure, if you will, after issuing Q3 profit warnings. Let's start first off with American Airlines cutting its guidance for the third quarter for earnings per share. It was expected to earn between $0.85 and $0.95. Now the company says, nah, expected to be closer to $0.20 to $0.30 a share for the third quarter. Two big hits to the bottom line. Fuel costs, which are now close to their highest point of the year, about right around where they were in January. And then you have the pilot contract that was agreed to. Remember, the pilots at American getting about a 43 percent

raise. That's going to have an impact on the third quarter. Similar situation at Spirit, not involving pilots, but also but still involving what we're seeing with jet fuel. Spirit noticing this is an issue, issuing a profit warning. And also, when they're giving their guidance for the third quarter, saying that the margins that they're expecting, they're going to be potentially negative 14.5 to 15.5 percent. And as I mentioned, jet fuel is the big culprit here. As you take a look at jet fuel over the last year, we're at a price right now similar to where we were late January, early February. Quickly want to shift gears to the UAW. In about 10 minutes, we will hear from the president of the UAW about where things stand with the contract negotiations with the big three.

As you take a look at shares of the automakers and what they did today, remember this contract expires at 11.59 p.m. last night. This morning on Squawk Box, we talked to Sean Fain, president of the UAW, about the possibility of getting a deal done and the big hang-up over wages. Here's what he had to say about it. Normal math tells you that labor equates to five to eight percent of the cost of the vehicle. These companies could double wages and not raise prices and still make billions in profits. That's the big gap right now in these negotiations, guys. It's how much ultimately is settled upon as the raise over the next three or four and a half years.

Most believe it's probably going to come in anywhere between 24 and 26 percent. But the UAW was holding out for 36 to 40 percent. I think we see some movement here over the next few days. Maybe not enough to avert a strike, but you definitely will see some movement. Okay, we will look for it. Phil, thank you. Meanwhile, Adobe shares have been red hot this year. Find out what to expect when the company reports earnings after the bell tomorrow and whether the stock will keep rallying.

Ahead of its Q3 earnings tomorrow, software giant Adobe announcing today general availability of its Firefly generative AI for images. You don't have to be a Creative Cloud subscriber to use it, but you will have to buy credits. And that's an on-ramp for Adobe to paid subs, they hope. I spoke with SVP Creative Cloud Ashley Still about the expected productivity benefits of AI for marketers and other artists. I was talking to someone on my team the other day, and she was saying for projects now, she would have generated five ideas in the past. She's now generating 60 or 100. And so finding that, being able to explore and really find the best way to bring an idea to life is incredibly powerful. Talk more about how this might affect the financials when Adobe CEO Shantu Narayan

joins Overtime exclusively tomorrow before the analysts call to talk results. Don't miss that. That's going to be a big interview. I actually thought what you had to say was very interesting, too, because it feeds back into the macro conversation and this idea of increased productivity and what that does to the labor market. And it sort of helps to ease things longer term as well. Yeah, and if you can develop more ideas faster, get them in front of people, this is going to be one of those test cases to see does AI eliminate the need for creatives or does it expand the amount of work that the best creatives are able to do.

So Adobe's optimistic about it, but, you know, it's their job. They're an AI software company. They're kind of talking their book a little bit here. A little bit. I mean, in the meantime, we did get ARM pricing, $52 a share ahead of that debut tomorrow. The Starbucks nudes, Howard Schultz retiring from the board, end of an era there. Tomorrow on tap, retail sales, also the ECB rate decision tomorrow morning. I go back to Arm. I mean, this is a really big deal, literally, but it's also a test of so many converging issues, including semiconductors and AI and kind of a global picture.

There's a lot wrapped up here in how the markets and how potential other IPOs might or might not come to market. Not to mention what it means for SoftBank and for capital raise in the public markets as well, since, you know, they were fast and furious for so many years. Chances are you're going to get diluted if you if you buy this at some point before too long. All right. Well, it was a mixed picture for the markets today. The S&P finished the day up slightly. The Dow slightly lower. The Nasdaq higher, too. It's going to do it for us here at Overtime. Fast money starts now.