Power Lunch - Power Lunch 8/14/26

Episode Date: August 14, 2026

CNBC’s Kelly Evans and Brian Sullivan take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. ���Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

A record setting week coming to a close as one big group of stocks comes roaring back. Welcome to Power Lunch, everybody. Alongside Kelly, I am Brian. We've been hearing all week momentum shifting away from tech. Uh-uh. Not so fast. It is software, memory, and chips. Kelly, back in the driver's seat.

And how about software? Some names surging this week, while others are still falling just as fast. We'll examine the split. What's behind it? Where does the sector go from here? Cities, Tyler Radke, will talk about that. And the classic car market, Brian, is shifting gears. More than a thousand cars are headed to the auction block in Monterey,

but it's a good thing in this case. Don't worry. What's hot, what's not, and what's losing its luster? That's all ahead. I don't know if you watch the Simpsons, but Homer Simpson, whenever he thinks about a donut, he gets this drool, and he goes, oh, donut. I'm looking at those cars, and that's kind of what I'm thinking. We'll get to that with Robert Frank here in a few minutes,

but we're going to start, oh. There we go. We're going to start with the markets in your money because we are headed for another good week. And if we close higher on the S&P 500, it's close, by the way. We may not. It will be the index's third higher week in a row. There's a couple of market points, though, that stand out inside the market. First off, your top sectors this week, I mean, energy, just blowing the doors off everybody up 7.3% utilities and staples also both higher.

There's your sectors. but from a specific index perspective, the economically sensitive small caps, they just keep rocket. The Russell 2000, making record highs again, heading for another close above 3,000. The Russell 2000 has soared 45% in just two years. Wow. Let's talk about all of this with your two smart guests to kick things off. Sylvia Jablonsky is CIO and co-founder of Defiance ETFs and Steve Sosnik, Chief Strategies. just at Interactive Brokers. Welcome. Happy Friday to both of you. Sylvia, first off,

from a macro-ETF perspective, we're pointing out small caps, where are you seeing your customers, your clients, where is their buying interest right now? Well, I think he said it really well in the introduction. When I was drooling. Yeah, totally, not the cars necessarily, but flying cars, and why would they be flying cars because of AI? So, you know, the flows are right back to AI power and infrastructure. They're right back to quantum computing. They're back to the AI trade, the single stocks are, you know, the microns, the Palantiers, basically everybody who was kind of punished for the last couple of weeks around geopolitical news and, you know, potential Fed tension and all of these things.

Earnings became the clearing event for the market. And, you know, here. What does that mean? Earnings became the clearing event. Well, the AI hyperscalers delivered, right? I think that the spend is coupled with monetization now. We got a clear picture of backlog and orders and where the AI trade is going, that money will be coming from this.

And the market was sort of satisfied with what they saw, 85% of the names meet or beat on the top bottom line. And obviously you're always looking at those innovative part. You're flying cars, please. Absolutely. Is there anything in the AI buildout that you see slowing down? Or we're talking, again, about these data center moratorium. The risk maybe a little bit higher going into the midterms.

But then more money. Look at the drone names today, by the way. On that news, there's going to be tariffs, I guess, that would benefit the U.S. makers. Yes, like an unusual machines, for example, or Shield AI. For 21%. Yeah. And I think that, you know, these are names, you're talking about driverless pilots and, you know, airplanes and drones that take off vertically and can replace fighter jets and things like this. But another cool one, I saw you the other day dancing with a robot. Yes, yes, that's true. That's true. China robotics, humanoid robots, the generative AI is the brain and, you know, the Chinese memory and picks and shovels are the body. And I think that that's a new sector. But to answer your question more directly, I think that the AI trade is broadening out to different ideas. And it will be things like that.

It's more like waltzing, by the way, with a robot. This is one of the names you had your eye on, though. This is, yeah. I mean, we're, yeah, there's actually a China Robotics' CTF coming in the market next week, but it's a lot of these Chinese robotics and humanoid types of stocks that are powering this, and it's going to be one of the new pillars of AI. Steve, I don't want to be robotic with my questions, but what, sorry, I had, what is the options market telling us, right? People say, well, don't worry, it's August, low volume.

I get it. Been doing this a long time, but I don't care if the market goes up, it goes up. What is the options market saying? It's interesting, you asked Brian, because we've seen the volume in stocks contract, at least on our platform. You know, it's summer doldrums. We know this. But option volumes remain very, very steady. And for two reasons.

Number one, I think a lot of traders use them for income generation. So they're just out there. They're going to write their calls or sell their puts regardless. And so there's going to be that activity. And plus, you do see the speculation. We've seen call option activity, the skew, the implied volatility for a lot of calls on individual names. I think it's about 35% of the S&P 500, where typically the people are more willing to pay higher implied volatilities for downside protection, for insurance.

In this case, I call it FOMO insurance. They want the upside. They don't want to miss the rally. And maybe you're an institutional investor who's underinvested. Maybe you just don't want to be chasing these names at these prices, but you can't risk underperformance. Or you just want to speculate because these things seem to go up all the time. So we see a lot of people clamoring for calls and also a lot of the traditional writers of calls asking for more prices. Are these more retail or are these more institutional or do we not know?

Some and some. It's tough because, you know, there's a lot of what I call pro tail out there who sort of straddle the line between institution. And they're individuals, but they act like professionals. And I mean that in a very good way. So it's tough to tease that out. Yeah, so broadly then, I mean, look at this run. The small caps are up 23%, which means they're on pace for a 40% year. Would you lean against any of this?

Small caps, them always have this love-hate relationship because you can't short them because the entire Russell 2000 fits neatly into like Invidia, basically. So you can't fight. I think Invita is actually bigger than the entire Russian 2000. You can't fight against momentum. But I'm going to say boring actually has been outperforming exciting. We talk about the exciting stuff all the time. No offense, Sylvia. All that stuff is super exciting. But we had our top 10 names up. They're all

exciting names. The value stocks, first of all, the S&P equal weight has been keeping lockstep pace with the S&P 500. And if I break up, two of the ETFs are, sorry, they're not yours, but V-O-N-G and V-O-N-V. Just kick this man off the set. Sorry. V-O-N-V-O-N-G, which are Russell 1,000 growth and value, the G for growth. The V-O-N-V is kicking V-O-N-G's butt. It's up by double-digit percentages more. So we're all focusing on this exciting stuff, but that's just people sort of rushing from one side of the boat

to look at the sites over there, and then, oh, you know, oh, wait, let's go rush to the other side. That's why you see these volume swings. But the other stuff is going up slow, steady, with basically no volatility. That's really an investor's dream. Does it tell us anything about the macro market? We were waiting forever for small caps to take off.

now they finally have. Does that give us a clue about the economy, Sylvia? I mean, these are economically sensitive companies. It does. And I think the overall backdrop for the economy is strong. We had that soft landing scenario. We have a Fed that potentially could stay put now or do fewer hikes than we thought.

But just to elaborate on what Steve just mentioned, you know, boring is working. But the reason why boring is working is because energy and utilities equal AI power and infrastructure. So I'm going to say that the reason boring is working is actually because of this. I don't think of energy is boring. I know you're the energy guy.

All these lights are working for a reason. Defense and safe. Your car got here for a reason. That's right. That's right. Do either of you have a point of view on health care, which a lot of people will come on and say, this is the moment. It's up, you know, nicely the last month or two.

It's not usually the place to go and kind of look. But do you have anything on that, Steve? Health care is fluky because, you know, at any of a moment, you know, it's too broad of a topic because do you want, you know, are we talking about, are we talking about, are we talking about, you know, drug companies and drug development. So it's idiosyncratic. I think to some extent, and it's tough because technically they should be thought of as defensive, but not all of them are, particularly not the biotex.

I wonder about the workday deal and about the software space. Again, one that's hard to generalize. You have everything from the cyber names in there to, you know, it runs the gamut. Could this now, it's been, again, it's had more of an upswing. Could this now be the catalyst or more take-o? Are people getting interested in those names? Yes, but not. like they're still not knocking the usual suspects off the board. But I do think people are,

honestly, I think people became more focused on him in the aftermath of the situational awareness debacle because he had been aggressively shorting these names, which had contributed to a bit of underperformance. So I think you have been seeing a bit of a snapback. And then, of course, the workday deal is fundamental, not just technical. And situational awareness for a lot of our viewers and listeners, you may know, you may not. It's a giant hedge fund in San Francisco, hugely leveraged. You got crushed last week. Citadel came in and kind of rescued it.

I think that probably affected the macro market. It's got an odd name for a hedge fund situation awareness, but that's it. Sylvia, let's get specific. You got like IonQ, D-Wave Palantir, and something called unusual machines? Yes. UMAC. Yes. UMAC and Shield AI, which is actually a private company, but you can find these.

We have a Jedi ETF, right? So I think there's a big drones are a very hot topic right now, and drones are doing particularly well, the unusual machines because it's U.S. based, right? So you have that benefit that they're not offshore. You don't have the China exposure and things like that. But, you know, with geopolitics, everything we see in the Middle East and, you know, war transitioning to more of a modern theme with AI drones, you know, pilots, pilotless planes, pilotless drones and things like this leading technology there, we've seen a real jump in that. Look, Steve, 164% year-to-date. Oh, I'm not-s, I'm not sneezing at any of this. I'm not looking to these other sectors.

Where am I going to get that kind of gate? On the other hand, are you okay with getting like 30% in these growth stock? Actually, I have a serious question for you before we wrap. We were just speaking last hour with a city analyst who has identified the socks as entering bubble territory, which he describes as two standard deviations above the historical norm, says entered in April, probably still has more upside to go. But when it and seven of its main components, including in Vibon, breach their 200 days to the downside, watch out.

And his point is, whatever gains you get right now, you're going to be giving back. What do you think about that point of view? It's always risky to say the bubble is here, but I think we're closer to bubble-ishers than not. We're certainly, the valuation is very frothy. Again, we're seeing the momentum swings. We hate semiconductors this week.

We love semiconductors. The MAG 7 is out. I'm called the Fab 4 or back in, you know, the hyperscaler. So this frantic movement around, but it all relies on the AI trade, you know, working out. And to a certain extent, we were talking about this in the green room. You know, there was a segment with OpenAI. If Open AI doesn't get this IPO deal done, what are the ramifications of this? So I think we're very dependent upon this, you know, this sort of optim—the optimism is rampant. And we are very stretched in valuation. So I would say, right now when volatility is low, if you're a little bit nervous, you buy umbrella.

as when there's a drought, basically. And that's kind of my thought. Anything you'd add to that, Sylvia? You know, I think dollar cost averaging for the long term and you're kind of less impacted by these ebbs and flows and bubbles and pops and buy on the dip opportunities, just kind of keep a consistent portfolio and tends to work out in the end. See, thank you both. Really appreciate that we all cum laude. Sylvia Javonski and Steve Sosnik really appreciate it. Let's do the bond report, shall we, with the yield curve steepening. That means just the difference between short and long term treasuries. It's at its widest in three months. Good sign or sign of a debt crisis. Let's turn to Rick Santelli. Hi, Rick. Hi. Well, it all depends on which side of the Fed fence you're on and, of course,

monitoring capital flows. Let's start out with how exactly steep is the curve. There's a three-month chart of twos and tens. The difference now 53 basis points. It's really important to look at the driving force. What leg of that spread? The twos of the tens is the driving force. Well, judge for yourself. This chart is since the July Fed meeting. Twos and tens. Two year yields dropping rather dramatically. Look at the percentages. Ten year yields moving up. The driving force is the drop in two year. And it is being caused by rethinking exactly what the Fed and the market are thinking. And right now they're certainly not thinking. There's a hike at the next meeting. And it's even more.

It's not that this is the only yield curve steepening. Look at 30s to tens. We call it the knob in Chicago. The difference is 57 basis points. It's actually the steepest in a bit more than three months. And there in lies a lot of information. I can't tell you how many people have been asking me about 30-year bond. What's driving it?

Why are the yields going higher? The steepening of the curve is a big issue because many players like to use the 30-year as their sell leg on a steepening spread. And the driving force there is is they want to be long, looking for lower rates in the short end, and to make that trade capital responsible, they do it as a spread.

They buy the short, they sell the long. It's moving everything wider, and it really gives us a glimpse into the psyche of traders. They know that there's an inflation issue. The market on the long end seems to be taking care of it. But on the Fed side, we could talk about what people think they should,

should do, but the market's telling you what they're most likely not going to do, and at the moment, they're not going to be hiking rates. Kelly, back to you. All right. Thank you, Rick. We'll take it then. Steeper yield curve. And we're just getting started on Power Lunch here today. Steel ahead is the consumer tapping the brakes. Retail sales falling for the first time in nine months, what it means as the big box names gear up to report next week. And after the break, the halves and have knots of software, MongoDB, HubSpot, and Atlassian up big this week. the name's poised to benefit from AI, according to city's Tyler Radke. He'll have more on that next.

So far, August may be remembered as the month that software came roaring back, or at least mostly. Look at these gains just over the past 10 trading sessions. Atlassian is up 60%. Palantir, 43, nearly. Z-scaler 22 and Palo Alto up 16. And the overall sector has done pretty well, too. The IGV ETIP is up nearly 11% just since August 1st. and is now down less than 1% on the year. Big difference from the spring.

So where are the opportunities? Tyler Radke is the man we're going to ask about that. He's the co-head of U.S. Software Equity Research at City. Tyler, it's good to see you. And first of all, there are some have-nots too, aren't there? How would you broadly describe them? Yeah, I mean, what a year, right? You talked about the IGV being up 1%.

I think if you went to sleep in January and woke up now, you'd say, okay, not much of a year, but the volatility's been insane. I think what the key takeaway coming out of this earning season is that we're entering much more of a stock pickers market within software. The first part of the year, it was sell software at all cost and buy semis. This past quarter, what did we see? We saw a lot of these software companies sort of cross the AI chasm, meaning their business models, their profitability, their revenue growth started to inflect higher as they started building out more of these AI products. And so now you see some of these winners really take.

taking off. You know, Microsoft, you talked about Palantir. There's some other names. So I think it's really about identifying who are those next group of companies that are really the AI winners, maybe haven't been priced like that from the market. So MongoDB, there's some other names we also like. But I think that's the general framework investors are thinking about. How do we look at the difference? I know Kelly's talked a lot about cybersecurity. Those stocks have done well. They're software-ish. They're kind of all in the the IGV, but at the same time, they do very different things than other pure play software companies where maybe a GENTICs AI can kill them. So, Tyler, how do you look at breaking down the investment

opportunities by AI is going to help them, AI neutral, AI is going to hurt them? Yeah. Look, I think you sort of have three different categories of software companies. You have the cybersecurity companies, which you talked about. I think all those are doing well for obvious reasons. We see some of these new security attack vectors, which are pretty unbelievable. Then you have infrastructure software companies, right? These are the ones that are selling essentially databases, cloud computing. We all know AI is incredibly data intensive. And then the third category is application software.

Now, that last bucket, that's where it gets a little dicey in software, right? Because there's more software applications being written this year than the entire industry. combined because of AI, right? And so I think generally the safer ones thus far have been in cybersecurity and infrastructure. Now, there will be some application software winners out there, but I think that's where sort of some of the risk lies. We generally have a preference for the data infrastructure companies. You think about Palantir. Who then benefits from, sorry to interrupt, who benefits from all the data then? Because if AI is creating all this data, So our brains, as great as they are, can't sort through that, Tyler.

Yeah, yeah. Yeah, we can't store the millions of lines of code being written, that's for sure. So, yeah, it's the companies that are providing the databases, right? It's the companies that are, you know, essentially providing the hyperscale cloud computing services. So Microsoft, Oracle, Snowflake, MongoDB. We've seen Datad work this year as well, right? So those companies, how is their business grow? More data, more queries, more volumes. So those are some of the winners that we think. Obviously, some of those have done really well. Here to date, there's some others that have not really participated as much in this rally.

And finally, Tyler, if there is going to be a private equity role here, could you see more, given these valuations in some cases, like Workday, still down from its five-year kind of all-time high, are there other candidates to think private equity could be interested in? Yeah, that was a pretty surprising headline yesterday. I mean, this I think would have been, or as it was announced, the largest private equity deal ever, right? So, you know, it sort of changes the calculus on maybe what is possible. But look, I think there's a lot of concerns just around, you know, software businesses, the terminal value. And by the way, private equity owns a lot of software already. And they've bought some software assets at much higher multiple. So how are they going to monetize and make returns on their existing book of business?

Now, look, I think some of these valuations just got way too cheap at the bottom. So I think that will be interesting to watch. We'll see if there's a formal announcement. And then certainly that's a mega deal. So smaller deals, in theory, could be a lot easier. You do wonder if it puts in somewhat of a floor, you know, underneath these. Yeah, I think so. Clearly, you saw the sector rally a lot yesterday.

on the back of those headlines, it's giving a little bit of that back today. But, you know, I think it definitely makes you certainly cautious about shorting things at, you know, basically all-time low from evaluation perspective. Right, exactly. Tyler, thanks so much. We'll let you go. Thank you. Tyler Radkeet.

All right, coming up is the classic car market about the shift gears, Robert Frank, with a tough assignment of being in, oh, what is, what do we look? at that car is spectacular, Robert. What is that? Bugatti, EB-110, we're going to tell you what it's worth coming up. All right, let's call this segment, hot rides at an even hotter market. Some of the world's rarest and most expensive cars are about to hit the auction block in Monterey, California. If they all sell, it could total up to $500 million and also set a record. So I'll stop talking.

And let Robert Frank back in on Pebble Beach. And Robert, sorry, we had to cut you off there before the break. I was asking you what that car is. We heard Bugatti. You got that. What else is up for auction? These are stunning cars. Yeah, Brian, over a thousand cars coming up for auction.

As you say, we're going to break a record this week, probably over $500 million in sales. But it is a new generation and a new kind of car that's really driving this market right now. The so-called boomer cars, those are the 1950s and 60s supercars that really drove this market for years. They are stalled or declining in value as those older cars. collectors kind of fade for the market. The millennials and Gen Z, they are the hot new money. They're what's driving this market. They like cars from the 90s and 2000s. A sign of the times. The top seller this week likely to be this 1996 McLaren F1 GTRs is owned by Pink Floyd drummer Nick Mason. This is likely to sell for $35 million over at RM Sotheby's. I also got a chance to

sit down yesterday with the CEO of Bugatti. He is not. known as the Elon Musk of Europe. And even though he started an EV supercar company, took over Bugatti, he said that while mainstream cars are going to go electric, supercars and cars that appeal to the rich are going to stay with old-school engines. Take a listen. Normal cars, normal people, majority, vast majority will be electric. Then the upper segment, like sports cars and upwards, I don't think so.

I think it's going to stay combustion for a very long time, exactly like watches. You know, only like 5% of watches are made in Switzerland, but that's where 90% of profits are made. So the new Bugatti is $4.5 million. That's sold out so you can't buy one of those, but you can't buy this. This is, Brian, a 1994 EB-110 Bugatti. They only made about 100 of these. This is five, one of five of the super versions. This estimated at up to $12 million. And this is the kind of car that these young buyers like because they're truly modern supercars, but they still have that sort of old school connected internal combustion engine and that road feel. So we're going to go a lot more today. We're going to start getting results, but a huge amount of money and about 100,000 people here in Monterey this week, guys.

What else has caught your eye, Robert? Just like personally, like, what are you like, wow? You know, I really am starting to like these old Jaguar E types, which started to get crazy in price, are now coming down in price. That's a 12-cylinder engine. I think Enzo Ferrari once called it the most beautiful car ever made coming from him. That's quite a statement. And now those cars are starting to decline in value. So I'm waiting for that to hit maybe like 100 grand. And that starts to get interesting. But a lot of these 50s and 60s cars and the pre-war cars are getting down right cheap, Brian. So us old guys have a lot to look forward to. Yeah, we're showing that Carol Shelby owned Cobra that you highlighted on Squawk Box. I mean, these cars

are in some cases literally one of a kind. So are you, Robert Frank. The only man I know looks really, really good in a double-breasted suit, too. Thank you, Brian. You're very welcome. I like, do you see the hand in the pocket I know. He pulls it off. He

does it. All right. For more on all things, well, be sure to check out Roberts. Wealth Newsletter at CnBC.com slash inside wealth. Let's get now over to McKenzie Seagalos with a CNBC news update. The Manhattan District Attorney's Office says, despite Luigi Mangione's guilty pleas today in federal court, it is prepared to litigate motions filed by the defense and still committed to seeking justice in the case. After Mangione this morning admitted in federal court to killing United Healthcare CEO Brian Thompson and pleaded guilty to stalking charges that carry a life sentence,

his defense team filed motions to dismiss the case on double jeopardy grounds. FDA inspectors are reportedly on the ground in Mexico inspecting Taylor Farms facilities linked to the cyclospora outbreak. The Washington Post reports it's the first time inspectors were on site and planned to inspect crop fields next. According to the CDC, the outbreak linked to iceberg lettuce has sicken nearly 10,000 people in 17 states and resulted in two deaths. And France's constitutional counsel today struck down the country's social media ban for children under 15, ruling that it amounts to an infringement on freedom of expression.

French president Emmanuel Macron says lawmakers will work on new legislation that addresses the council's concerns. Brian, sending it back to you. Well, big ruling there. Mackenzie, thank you very much. Coming up, we hit the consumer story and whether the American shopper is finally checking out. Welcome back. got a much softer than expected retail print for the month of July, down 0.6% month on month. When we were expecting about a 1% increase, is that just a blip? Is it Amazon's fault?

We'll get several more data points from all the big box retailers next week, the likes of Home Depot, Lowe's, Walmart, and Target. Joining us now is Wolf Research, Senior Research analyst Spencer Hannes, who leads the Broadlines and Hardlines coverage. Spencer, it's great to see you. First of all, what happened with retail sales today? Yeah, we saw a softer than expected print, as you mentioned. It came in down 60 basis points versus expectations of up low single digits. There was some shifting of promotional events. Amazon moved their big Prime Day event into June, which impacted the July numbers here.

And we also saw a lot of the other retailers like Walmart and Target move their big promotional events. It typically coincide with Prime Day to June as well. So we think that just a shifting of timing versus a real kind of kind of score slowdown in in the consumer. I love retail earning season. I'm so when we get to this part, because you know, it's so recognizable and everyone's a little bit different. So Walmart usually kind of speaks for the broad public, but not always. We're also going to hear from advanced auto parts, Ross, BJ's Dix, Bath and Body Works, Urban. You start to get into the specialty one's gap in all time. I mean, what do you broadly think is going to happen here?

Yeah, I think it's going to be a very interesting season. I think retailers are preparing for back to school that's coming up. It's going on right now. We're setting a pretty promotional back half of the year. And so I think a lot of investors are focused on sort of how much promotions are going to step up with the tariff refunds. And then how has the consumer been managing through the volatility and gas prices throughout the second quarter? We think broadly speaking, we think targets really well positioned here as comms continue to accelerate. We think Walmart's going to post a little bit softer numbers after they have some issues going on with their pharmacy business. And then for improvement, we think it's going to be pretty, it's going

be pretty muted. There still is pretty high rates out there, and that's impacting demand in that category. Wait, let's talk, because you know, and it must frustrate you as someone who covers a lot. Whatever the simple headline is on Walmart is going to be the headline heard around the world. If they miss, it's going to be, forget it, we're in a recession, but you're saying there might be a little bit of weakness in its pharmacy business? Yeah, I think the core business at Walmart remains very strong, but we're expecting closer to a 3% comp for the Walmart U.S. business, which would be one of the lowest comps that you've seen in years from Walmart. But it's really because they are as a headwind from some of these,

from regulatory changes in capping drug prices that's pushing down the comps this quarter. And then there's also less of a benefit that they've seen over the last couple of years from the ramping of GLP1s. If you strip out those pharmacy and sort of drug changes that's happening in the marketplace, the business is much steadier. So I don't think there's a lot to read into if you see sort of a sub four number, that there is sort of a massive slowdown at Walmart's and Walmart. sort of core business. We've been talking a lot about the consumer monthly data. We get a few different

surveys. There's a CNBC one. There's Bank of America. And throughout the oil price spike, those actually held up okay. In fact, we saw some lower end acceleration. What does your data tell you is going on with all cohorts of the consumer? Yeah, we're actually seeing that low-income consumer start to show some more signs of life. There's been a lot. There's been a lot written about the credit card spend for that cohort starting to actually accelerate, be faster than the upper income consumer. Even the wage growth has started to accelerate in that segment. So I think the low income has been surprisingly resilient. They've gotten used to all these shocks from the macro environment over the last few years with tariffs, gas prices, more geopolitical headlines. And so that's showing in just more

resilience in that cohort. So I think broadly we're seeing actually more strength there than we've seen in a couple years in that low income cohort. And a few times in recent months, we've had analysts, not who even covered the space, just, you know, people who look at the markets broadly say they expect consumer discretionary or in some cases restaurants to start breaking out. If that's the case, do you have a couple of stocks that you really like here and any that you're especially cautious on? Yeah, I think the dollar stores are ones that really have the most exposure to that consumer base. Dollar General, you know, stands out as one of them that we continue to like and think there's a good story there. I think Walmart as well, they've seen,

They saw less volatility in that consumer, we think, in the second quarter. And so that's one that we also, we like sort of longer term as that low income starts to get better. All right, Spencer, appreciate it. I feel like we're going to be okay, even if we, you know, we always get these huge movers during retail earnings season, you know. Yeah, I think so. It's going to be, there's definitely a lot of crowding for this cycle, but we think overall sort of the core and the consumer is holding up very well. All right. Does that mean the K shape is over?

Do you have a letter, by the way? Is it E? Is it K? Is it C? I don't know if we have a new letter. But the letter keeps changing every month. But the K, the new one I hear is the K is starting to collapse, is the new phrase that we're hearing out there. All right.

Maybe that's an L or an I. I don't know. Spencer, thanks very much. Good to see you. Great. Thank you so much. Spencer Hannes with Wolf Research. Coming up, why did another top executive leave OpenAI?

Is it just smoke or a real fire? Kate Rooney will have more on that next. More updates with OpenAI today as the company has lost a lot of top talent. Let's get to Kate Rooney with the very latest. Kate? Hey there, Kelly. Well, the latest that we're hearing is that OpenAI CFO, Sarah Fryer, and President Greg Brockman just wrapped up a meeting with investors.

I spoke to a source who was there. We got some of the behind-the-scenes details. The first headline, guys, is that OpenAI CFO told investors that business revenue has now topped chat GPT sales, Sarah Fryer, on that call, saying that they entered this year at about 6040 in terms of that split, but Enterprise has accelerated. She said much faster than expecting. and those lines have now crossed.

She says the majority of revenue is now enterprise, and that is a much higher margin business. It is really what investors want to hear, and this is all ahead of the company's own forecast, which we had heard earlier in the year. It was for parity by the end of this year, so beating that target. The meeting was with current shareholders,

and it was, from what I'm hearing, planned well in advance of some of the news this week, according to a source, but it comes one day after Open AI's biggest hire, arguably, Denise Dresser, stepped down as chief revenue officer. I mentioned Enterprise. She was head of that business, and they were asked about it from what I'm hearing. Greg Brockman thanked Denise Dresser, but did pivot to talk about the new CRO, Dolly Rogic. He is a cybersecurity expert who joined from Wiz. And from what I'm hearing, Brockman really also pushed off concerns about open source.

We've talked about that cost debate. He said it's a misconception that open source is just cheaper. He says there's room for both closed models and open models. Some other highlights, fire from what I'm hearing, talked about cost and their customers. She said enterprise customers have moved from talking about token maxing to focus on their own cost per unit of intelligence is how I heard it described and what Fryer told investors. She also highlighted the newest model being about 54% more efficient on agentic coding task. And then they recently dropped the price of some of their other models. They were also finally asked about IPO timing.

Of course, the question on everyone's mind, but they would not comment on it. They are on file with the SEC. So not a lot they can say on that. But those are some of the details, guys. Kate, how would you summarize the importance and the fact that they held this call to kind of try and calm things down? It's interesting. The timing is important. This call from what I'm told is an incremental check-in that they do with investors.

It was planned for this Friday, so it wasn't any sort of emergency. We got to get on the phone. But investors were lining up with questions saying, hey, by the way, what's the strategy here in Enterprise now that the biggest hire that you made over from Slack and an expert? in this area, someone who really helped grow revenue there is not here. And so I think the fact that this was announced the night before this meeting says a lot. I don't think that's a coincidence, but this was not an emergency meeting to respond to any of that. Great points. Kate, thank you. Kate Rooney. Appreciate it. Here to continue the conversation on OpenAI and a few other things, is Rob Sanderson. He's the senior internet analyst at Loop Capital Markets. It's great to see you, Rob.

Do you have a thought on OpenAI on these executive departures? I don't have any unique insight, but the optics aren't great. I think the, you know, the Brad Lightcap departure earlier in the week, not that surprising, right? He was moved out as CEO role in April. The Denise Dressor departure, more of a surprise. You know, she just joined in December and was given expanded duties in April. But I think we have to step back and recognize, you know, since then, Fiji Sumo has unfortunately had to step down. And, like, you know, a lot of analysts and investors, like, I have a lot of respect for her as a leader.

I think her departure definitely changes things internally. You know, it looks like elements of a broader reshuffling, perhaps. But this is a very dynamic company, very dynamic sector, huge talent war, right? Lots of turnover between the labs. I don't think that speaks that much to the underlying business. You think the Fiji-Simo departure is potentially more significant? It definitely changes things and was unplanned.

And, you know, for health reasons, hopefully she's able to get herself in a better place that way. But yeah, I think that probably leaves a little bit of more of an unplanned sort of hole for them. And, you know, but they have a lot of, they have a very deep bench. And they've got, I think, a lot of resources. And they're obviously a huge magnet for talent across the tech sector. So I think they'll be just fine. Last one on this in particular. But this company, you know, the old saying institutions are the shadows of men.

I mean, in other words, they often reflect the personality of the founders, the people leading them. In this case, while Sam is a genius. for fundraising and has, you know, literally created this whole category. Is this the kind of company you think would be a candidate? I hate to use the term for professional management, but is he necessarily the right person to be kind of, you know, at the helm here? Yeah. I think he's certainly a polarizing figure, but, you know, the amount of capital that they've

raised, the amount of profile of the business has, you know, gathered the, um, the amount of success they've had in the product and the end markets, you know, I think it's very premature to make a suggestion that there needs to be a leadership change up top. All right. Let's move on to Reddit, which is not really moving on as far as I'm concerned, because I'm obsessed with what's going on with this company as a feeder to the large language models. The shares are surging today because it's going to be included in the S&P. They're up 11%. But they're still down 20% this year. Why is the stock down? Why are they not the biggest beneficiary of the capital that Open AIA, why shouldn't they be getting tons of money?

Name your price. Is it because they've already taken their data to train their models and they don't need it anymore? Yeah. No, I don't think that that's the issue. You know, training is one thing, but, you know, the value of this community is really, it's evergreen, right? And that's much more important in inferencing, you know, as opposed to training the models of, you know, how to think and speak and, you know, feel like they're humans, et cetera. But you need that constant. renewal of current things, I think, to be a really excellent product. So the issues that are plaguing the stock, though, are really the upcoming licensing renewals at Google and OpenAI, both important, Google more important. And then more recently, a drop-in users following Google's

recent algorithm changes. You know, that KPI, you know, drives investors crazy, right? It's not that important, I think, for the community or for the monetization, but it's a really important for investor sentiment. And, you know, that's, I think, what are compounding on sort of creating some concern around the stock. Do you think that they have, you know, a very unique, a protectable, a business with a moat meaning. And I wonder about this for news providers. I wonder about this with Twitter the way it feeds Grock. I mean, if you have, if you're anthropic, if you're I guess, what is Gemini reading to stay current? I guess everything. What are all of the large language models reading? Who are they paying for access? Because remember, in the publishing business,

I hate when people talk about this idea that data is just out there for the taking. It's not. And as there's going to be more regulatory and other scrutiny on these models, they're going to have to provide correct and up-to-date answers without, for instance, you know what I did today? I don't have a Bloomberg login. And it's just kind of I'm a team player here. But there was a story I needed details on.

I couldn't. So what did I do? I just asked the large language model. Tell me about the, and it just gave me the answer. I don't know if Bloomberg. I mean, they did. I don't know if they got paid for that. Yeah, that one probably did.

I'm a content provider too, so I feel the concerns about, you know, protection of your unique insight and what have you. Back to what you had led off with in terms of, you know, where are the sources of this type of human-generated evergreen content. A lot of it are behind the networks like X, you mentioned, YouTube, Instagram, and Facebook, obviously. All these feed proprietary AI models of their parents. They don't allow others AI models to train or inferring. on that content. And Reddit is sort of that Swiss Switzerland in the middle with a lot of very, you know, specific, very helpful opinion and recommendations and real human generated real time.

That's not, you know, advancing their own frontier models. So that puts them in, I think, a really interesting position. You know, I do think that there's symbiotic relationship with Google. I think that they do, you know, need each other. You know, Google benefits from Reddit content, it makes their AI products best. better. So I think in terms of this sort of uncertainty on renewal and whether there's some sort of crowding out or squeezing out, I think that's all sort of conspiracy thinking. You know, there's, I think, definitely a win-win here. There should definitely be a win-win here. I think the companies

have mutually aligned interests. And I think that will play it forward. Right. It will certainly be maybe not a smooth path for the stock ahead of that. But I think that is the ultimate outcome. My final question would be, though, from, again, in terms of anyone thinking about holding shares of Reddit, can they count on those cash flows? To what extent can they squeeze some of the biggest companies in the world? Because I'm sure there's a price at which they'll say, yeah, we'll pay you, and I'm sure there's a price at which they'll say, yeah, forget it. Yeah, the licensing economics for both of those deals are not that important to the business. Like, you know, the company's grown its advertising revenue so much bigger than, you know, what those licensing contributions

are. It's nice. It's high margin. It helps the bottom line, but it's not that critical for the business. What's more critical, I think, think is the relationship and the opportunity to collaborate with Google on ongoing traffic source. That's really what the company's really positioning for in the renewal is how do we more closely align on product where more people are coming into our community, you know, because of these collaborations with the frontier labs. And again, I think that is, that serves Google's interest, more human generated content, more real time, you know, helps their AI stay relevant and fresh, so they help each other.

Yeah. All right. Rob, thank you. Really appreciate it to help explain the economics. As you said, as a content creator yourself. Thanks, Rob. Rob Sanderson, joining us from Loop Capital. Still ahead. Tech is back in the spotlight, but what else made some moves this week? We'll look back at the biggest winners and where there might be more upside next. Welcome back as we head into the final hour of trading. As the S&P is looking to put together a three-week win streak, here's some of the non-tech names that have

dominated over the last five days. Energy stocks, we mentioned how they've been breaking out this week, Marathon, Valero, Phillips 66, and One Oak, each posting near double-digit gains as the energy sector is on track for its best weekly gain. Get this. Since October of 2022. And yes, refiner, so this isn't really about the oil price. Meanwhile, alternative asset managers like Apollo, KKR, Blackstone, and Ares are going to finish solidly in the green as well, as many firms reported strong capital raising from wealth advisors, despite those recent redactors. Despite those recent redemption pressures Apollo up 11%. That's it for us on Power Lunch. Thanks for watching. Closing bell starts now.