Understanding the New Mag 7 Narrative, Geopolitical Risks 6/24/26

 Trump takes aim at big oil.
 Futures are higher.
 I'm Dominic Chiuin from
 Oregon, Brennan,
 and this is your morning call.
 Good Wednesday morning.
 U.S. stock futures right now
 are trying to bounce back
 after the Nasdaq's worst day
 and nearly a month.
 And you can see right here,
 the Dow's implied high
 by yes, a modest 35 points.
 The S&P is up by about 26
 in the Nasdaq 100 up by about 240.
 But investor anxiety for tech
 is tying to chip stocks
 after a massive two-day takedown
 in that industry alone.
 We're talking names like
 Micron, Sandisk, Marvel, Technology,
 Western Digital closing down
 anywhere between eight
 and 13% in yesterday's session.
 So we'll see if there's a bounce back
 for some of those names.
 Now this morning much more,
 you can see just about bounce back here,
 about two to four percent gains
 for those exact same names
 after those eight to 13% drops.
 Yesterday we'll have much more on that trade
 when we hear from Micron
 after the closing bell later on today.
 When eight reports, it's quarterly results.
 We're watching yields as well.
 We saw a little bit of a dip in yields yesterday
 as people bought the safety
 of U.S. Treasury debt right now.
 The benchmark 10-year note yield
 is relatively stable
 from where it was yesterday,
 just about a hair below 4.48%.
 The two-year note yield 4.19%
 and the 30-year long bond
 just a hair above 4.92%.
 The dollar index by the way,
 hitting a 13-month high
 in the course of the last couple of days,
 it's up again another,
 probably two tenths of 1%,
 101 spot 57, the last trade there,
 and energy as we continue to track
 the sharp drop off in oil prices
 as Iran, U.S. peace talks continue
 and Hormuz straight ship traffic
 tries to rebound.
 Benchmark U.S. West Texas Intermediate
 is $71.89.
 It's off nearly 2%,
 similar percentage move
 when it comes to ice Brent crude futures,
 the world benchmark gauge currently
 at $75.70.
 New developments also this morning
 from the president who says
 the federal government will be looking
 into oil price gouging
 at retail gasoline stations
 more on that story as well coming ahead.
 Now outside that wild ride in ship stocks,
 a number of names on the move
 ahead of the opening bill
 starting with shares of alphabet
 set to replace Verizon
 in the Dow Jones industrial average
 before the market open on Monday.
 Alphabet shares up about two thirds
 of 1% pre-market so far.
 SpaceX shares are indicated higher again
 after a roller coaster session yesterday
 that saw the stock hit a record
 intraday low in early trading
 before ending the day in positive territory.
 The move comes after the stock drop more
 than 16% on Monday
 shedding roughly $400 billion in market value.
 SpaceX shares right now
 above that $150 level,
 157 spot 46 up about 1% in the pre-market trade.
 FedEx shares are under pressure
 despite a top and bottom line beat
 for its most recent quarter.
 Investors instead turning attention
 to shrinking profit margins
 and what the company calls, quote,
 significant headwinds including trade policies
 and its grounded MD 11 cargo fleet.
 You can see there $292.50 were off 8%
 in the FedEx pre-market trade.
 And Cerebra systems is also under pressure
 after its first earnings reports
 and is going public back in May.
 The AI chipmaker beat Wall Street estimates,
 but investors are focused on the margin warning.
 Cerebra says full year gross margins will fall
 to about 41% down from its most recent quarter.
 Compare that to rival margins as well
 and VD is running near 70%.
 AMD's margins closer to 50% as well.
 So Cerebra's off 14% in the pre-market trade.
 We'll hear more when the company CEO
 joins Squawk on the street later on
 in the 11 a.m. Eastern time hour.
 Now to the action around the world,
 let's check in with Karen Show and London
 and our Lisa Kim and Singapore.
 Karen, we're gonna start with you.
 Don, good morning to you.
 It is a mixed bag for European equities this morning.
 Some of those regional indices largely
 in a holding pattern as traders digest the latest tech route
 and a slew of corporate news out here in Europe today.
 We're also waiting out for that US inflation data tomorrow.
 But as you can see, we've got slight bounce on some of the boards,
 French stocks in particular leading the way up,
 but you've got a selling taking place out of the DAX down,
 eight tens per per cent.
 So really pulled in both directions.
 We are tracking shares of Europe's big tech names
 which are largely on the front foot this morning,
 the likes of ASMR LST Micro.
 Try to shake off those recent sector jitters yesterday
 with attention, of course,
 turning to micron earnings out after the bell.
 But you are seeing a bounce here
 about 1% on ASMR holdings.
 And we're also watching shares of defense firms.
 They're under pressure on early trade
 with declines led by Ryan Mattel.
 Shares of the German defense firm
 are on track for their biggest one-day drop-on record.
 This after Germany reportedly scrapped plans
 to build its biggest warship since the Second World War,
 according to the Financial Times Berlin,
 opted to buy eight smaller vessels
 and set up six large F-126 frigates
 that to blow to Ryan Mattel in particular,
 which was targeted to become the lead contractor
 on the program.
 Some research analysts are saying,
 look, they need to revise earnings here.
 There was a 12 billion euro contract.
 So again, someone's certainly there.
 And don't forget defense has been all systems go.
 So any retreat from that story
 is quite significant.
 It's impacting the industrial sector too, don't back to you.
 All right, Karen, we'll have more on that defense tree
 later on this show as well.
 So we appreciate the update there.
 Thank you very much, Karen, show out in London.
 Now to the action in Asia and our Lisa Kim out in Singapore,
 is there a bounce back in play in those Asian markets, Lisa?
 Yeah, Dom.
 So most of the major Asian stocks recovered
 some of the losses from the previous session today.
 Samsung Electronics ended the day up around 10%.
 The chip giant is reportedly planning to buy back shares worth
 60 billion US after its recent pay deal
 with labor union to give stock bonuses to employees.
 SK Hynek saying in a local regulatory filing
 in the past hour that it will go ahead
 with its ADR listing on the NASDAQ on July 10th
 and that it plans to raise around 30 billion US
 through the listing.
 Chinese tech stocks also climbed today
 with China's biggest founder, SMIC,
 advancing around 9%.
 Reuters reporting, citing three unnamed sources
 that Qualcomm is in talks to design custom chips for bite-desk,
 which is the China-based parent company of TikTok,
 this against the backdrop of escalating tension
 over AI chips between Washington and Beijing, back to you.
 All right, Lisa Kim and Singapore with the latest there.
 Thank you very much for that.
 Let's talk a little bit more about that global tech sell-off
 that we saw on yesterday's session
 and whether that changes the market narrative
 as we head towards the second half of the year.
 Joining me now is Craig Johnson,
 the chief market technician over at Piper Sandler.
 Craig, this is an interesting development here
 because this is not something that we are unaccustomed to seeing.
 We've seen volatility like this.
 Certainly over the past couple of years,
 tied to the AI trade,
 has anything shifted in the charts
 that makes you feel as though this time is different?
 Yeah, good morning, Dom.
 And those are always the famous words.
 This time it's different.
 From our perspective and a typical perspective
 and read on this market, Dom,
 the trend is still higher.
 This bull market is still intact.
 The proof is going to be on the bears
 to see if there's something ultimately different here.
 But at this point in time,
 I don't think there's anything different.
 Certainly buying the dips is what investors are going to do.
 But Dom, if there's one thing we need to ultimately watch,
 is we need to be watching some of these major averages.
 We need to watch the NASDAQ composite.
 We need to be watching the NDX.
 We need to be watching the S&P 500
 and the transportation index
 because those indexes all have not made a new high year to date.
 And from a pure technical perspective,
 if you're not making higher highs and higher lows,
 well, then you could be entering a serious scenario
 where you're making lower highs and lower lows
 and you're in a downtrend.
 So this sort of relief rally
 that's emerging around the globe right now
 is going to have to be very carefully watched,
 starting with the Cosby.
 Can we make a new high in here?
 And if we can, then the trade is going to continue
 and nothing has changed.
 Is there anything Craig to indicate
 that we could see some of those negative catalysts
 affect some of those major indices
 and certainly some of the kind of leading indicators
 of the market overall?
 Do we know are there specific groups
 we've focused so much on semiconductors and software names
 and the AI names?
 Are those showing any signs of movement downside
 that could be prolonged?
 Or do we feel as though this is just one of those
 by the dip moments again?
 You know, Dom, I'm not sure it's as much to the downside.
 When I go back and I look at our longer term,
 semiconductor chart that we've curated here at Piper Sand
 where we're going to be back to the 1960s,
 we've entered a sort of a vertical,
 aerobolic advance.
 And again, those advances are fantastic opportunities
 to make money.
 The old saying is if you find a bubble by the bubble
 because it will continue to keep working until it isn't.
 And right now, there's no question that the AI trade,
 these semiconductor stocks are sort of
 bubble-ishish at this point in time.
 And right now, nothing has changed with that.
 Now, I will tell you, Dom, that you and I
 over the years have talked about the Mag 7 stocks.
 Well, they are clearly not performing
 as well as they have in the past.
 In fact, at a relative basis of the market,
 those stocks continue to sort of consolidate sideways,
 but they're going up at a slower pace
 on what we've seen before.
 So really, the trade and where to make money
 in this market right now is not the Mag 7.
 It is still down-cap in these small mid-cap names.
 The Russell's up over 21% year to date
 compared to the S and P, which is up
 but 8% to 9% year to date.
 And so you're seeing this sort of rotation
 in the market, Dom, to go down-cap.
 And hence, we're kind of living near the edge
 from our perspective of, do we break out,
 or do we ultimately sort of break down and consolidate
 in here, and that's where we're watching very carefully.
 All right, Craig Johnson, a Piper Sandler,
 with the call on small caps versus Mag 7.
 Thank you very much.
 We'll see you soon, sir.
 All right, we got a lot more to come here.
 A warning call, including $21 now,
 versus $2 a year ago.
 We're tracking the micron earnings surge
 and the lofty estimates ahead of its report
 after the closing bell later on today.
 Plus, Ryan Cohen doubles down in his efforts to buy eBay,
 throwing his $35 billion bonus option away
 to make it a reality.
 And then later on, a Mambani referendum,
 what a clean sweep in New York could signal for Democrats
 and the midterm elections in November.
 We've got a very busy hour still ahead
 and morning call returns after this commercial break.
 Welcome back to morning call, shares of micron,
 as you can see there are higher today
 than the pre-market trade, roughly 4% higher,
 after dropping 13% in yesterday's global tech sell-off.
 The memory chip maker's losing a record $180 billion
 in market cap just yesterday alone,
 but the stock is still up sharply
 over the longer term, more than 250% higher this year,
 and more than eightfold over the last 12 months.
 The move comes as micron is set to report earnings
 after the closing bell today
 as it continues to see massive sales growth
 amidst a global memory chip shortage.
 Shortage, that's the key there.
 Let's bring in Kevin Cassidy,
 semiconductor analyst over at Rosenblatt Securities
 for his take, microns after the bell today, Kevin,
 can we talk about why micron sold off the way that it did?
 Yes, the price action was a little bit astonishing,
 but it's also because it's got an earnings report coming up
 and there is still a shortage of these memory chips.
 Right, thanks, Tom, for having me on the call this morning.
 Yeah, so I think micron sold off because in Korea,
 we had a sell-off of their two competitors,
 Samsung and high-necks and investors might get jittery saying,
 oh, maybe there's something going wrong in the memory market,
 but we go back to our basic thesis
 is if there's no new supply coming online,
 you want to own the memory names,
 and demand really takes care of itself.
 It's more the supply side that kills a rally
 in the memory market.
 That supply side, if it remains constrained,
 is it then potentially a headwind?
 Yes, there's pricing power in a shortage situation,
 but there's also a capacity issue.
 You can't sell as many of them.
 What's that tipping point for many of these names
 like micron or a sand disk and others?
 Well, there's two ways to increase bit supply for the memory.
 One is by shrinking the transistors, that's Moore's law,
 and the other is by adding new waifers.
 Adding new transistors or smaller transistors
 increases the capacity by about 15% per year.
 So every quarter, despite all the headlines saying
 there's a shortage, they are bringing out more product,
 but it's the new waifers that really puts
 a step function increase in the supply.
 So they'll have more supply this quarter than last quarter,
 but again, the demand is going up
 and we think their gross margins continue to expand.
 How does micron stack up to the other memory chip players globally?
 We mentioned many of these names,
 they kind of seem to move in tandem
 and maybe because there's an ETF that tracks these things now
 on a basket basis, but how does micron stack up
 relatively speaking with regard to its competition
 and is it the best memory stock to own?
 They're micron smaller and they're happy with their market share,
 I'd say it's around 25, 30% depending,
 but you know, Samsung and Heinex
 vying for first being the largest suppliers.
 So it's more about, it was quite a few years ago
 when there was a consolidation in the market
 that left only three suppliers
 that they all said it's better to be profitable
 than to worry about gaining market share.
 So micron is comfortable with their market share.
 They are expanding capacity in Idaho in 2027,
 a second fab in Idaho in 2028
 and then they have the mega fabs coming in upstate New York in 2030.
 So they are growing, but the others are also.
 So Kevin, what exactly is going to be good enough for you
 when micron reports after the closing bell today?
 Well, we're focused on gross margin
 and it'll be 80 guidance for 84% gross margin,
 which is up from what we're expecting
 to be around 81% this reporting quarter.
 So we're just looking for that gross margin expansion to continue.
 And is there anything Kevin before let you go
 that gets multiple expansion going for these chip names?
 Well, because they're a cyclical name and for years, of course.
 So people get cautious when we see these type of gross margins.
 I mean, this is nowhere close.
 So it was only three years ago
 when micron was had a negative 9% gross margin,
 but that of course told them not to build more capacity
 because they were over capacity.
 And it takes three years to build a fab.
 So they finally got profitable on the gross margin line
 and started to expand that capacity.
 So that's more what we're concerned with is
 when does this capacity come online and how big is it?
 All right, the current price is micron shares right now.
 Trade it roughly 10 times forward earnings.
 So we'll see how that holds into the print later on this afternoon.
 Kevin Cassidy, thank you very much.
 We appreciate it.
 It's a good luck this afternoon.
 Thank you, Dad.
 All right, straight ahead on the show here.
 Fund Stratz Tom Lee is here.
 Why he says the recent pullback in big tech is not a sign,
 not a sign of the market top.
 In fact, quite the opposite.
 But first, checking on shares of Morgan Stanley
 as the bank is capping redemptions
 for one of its private credit funds
 after investors sought to pull roughly 11%
 of the outstanding shares.
 The North Haven private income fund says
 about half of those requests came from investors
 who were unable to fully cash out in the first quarter.
 Morgan Stanley's move coming as funds
 run by Apollo Global, Blackstone, and BlackRock
 have also limited some of their withdrawals.
 Morgan Stanley shares down two thirds
 of 1% pre-market morning call is back after this.
 All right, that was a beautiful shot of our nation's capital.
 And speaking of, we're going to check some of this morning's
 latest headlines.
 First of all, President Trump says
 he is instructing the Department of Justice
 to immediately start looking into what he calls price scourging
 by big oil companies for not lowering retail gasoline prices
 in line with a steep drop in crude oil prices.
 According to AAA, the national average for a gallon
 of regular unleaded gasoline is down more than $0.62
 from a month ago to just about $3.93 right now.
 Checking shares of Exxon, Chevron, and BP,
 you can see right there down fractionally
 in the pre-market trade so far.
 A day after the Senate just in-house just passed a bipartisan bill
 aimed at addressing housing affordability in a 358-32 vote,
 the bill now heads for the president's desk.
 It would streamline rules around factory built housing,
 encourage localities to remove barriers to construction
 and curb large institutional investors
 from ownership of single-family homes.
 Meanwhile, GameStop CEO Ryan Cohen says
 he's withdrawing his $35 billion bonus plan
 so his company can, quote, be fully focused
 on its proposed eBay acquisition.
 The retailer says it will release additional materials
 regarding its proposed buyout this week,
 including a detailed presentation of the strategic rationale
 and an operational plan for the combined companies.
 The CBLE or SIBO is launching its first prediction market
 product hoping to take a bite out of what's become
 a $24 billion trading market dominated
 by the likes of Kalshi and Polly market.
 The SIBO will begin by offering binary options contracts
 based on the S&P 500 mini index.
 We'll hear more when SIBO CEO Craig Donahue joins CNBC tomorrow
 at 1 p.m. Eastern time.
 And speaking of, the CFTC is suing Kentucky
 after it joined 19 other states looking
 to regulate predictions markets,
 including those on Kalshi and Polly market.
 The CFTC is now sued nine states in an effort
 to protect what it sees as its exclusive right
 to regulate prediction markets.
 Now, we should note, CNBC and Kalshi have a commercial relationship
 that includes customer acquisition
 and a minority investment by CNBC in Kalshi.
 We've now got a news alert and a big night
 for New York City Mayor Zoran Mamdani,
 all three of the candidates he endorsed
 in highly competitive Democratic congressional primaries
 held yesterday secured decisive victories.
 It's all seen as a major blow for establishment Democrats.
 The contests also viewed as a test
 of the political strength of Mayor Mamdani
 who broke with Democratic leaders
 to endorse those specific candidates.
 So a big eye on all those big congressional races coming up
 in the New York City metro area.
 Meanwhile, in Washington, DC,
 President Trump is scheduled to head to Capitol Hill this afternoon
 where he's expected to sign that housing affordability bill
 has passed by the House into law.
 But the political victory is being somewhat overshadowed
 by fractures between the president
 and congressional Republicans on the Iran War
 and election reform bill and Republicans prospects
 for victory in the upcoming midterm elections.
 We'll still on deck for the show here
 sticking with Capitol Hill,
 not just fellow Republicans,
 why the President plans to put the pressure
 on defense CEOs at a high stakes face-to-face later on today,
 when he called continues with that story after this.
 As our country celebrates its 250th anniversary,
 CNBC spotlights the leaders driving business
 and the nation forward.
 To describe the history over the last 250 years
 of American business and innovation,
 I think the one word I would use is daring
 because you have to take risk
 in order to achieve success.
 When you developed the first vehicle in this country,
 when you first developed the first airplane,
 the first computer,
 you didn't know if that was gonna work or not, right?
 So you had to have a certain amount of conviction,
 courage, confidence and a daring spirit
 to actually move forward with that and make it happen.
 That spirit that brought us here
 will continue to propel us forward
 as long as we don't lose
 that sense of entrepreneurship and innovation.
 I think that is the ingredient for the next 250th anniversary.
 I think that is the ingredient for the next 250th anniversary.
 I'm Dominic Chiuin from Morgan Brennan.
 Welcome back to Morning Call.
 Let's check on US equity futures,
 trying to bounce back somewhat after the NASDAQ's worst day
 in nearly a month right now.
 The Dow's implied higher by a modest 21.csmp up by about 25
 and the NASDAQ up by about 216.
 It's a more mixed picture for global markets this morning
 after yesterday's sell off.
 The South Korea Caspi is up over 3%,
 but it was a very volatile trade in today.
 Japan's Nikae down nearly 1%.
 And let's check on the early trade in Europe as well.
 You can kind of see some of the movements there.
 The German DAX is down about three quarters of 1%,
 relatively flat for the FTSE 100,
 and the CAC in France is up about 1 quarter of 1%.
 Back here on the US shores,
 three stocks to watch on the back of earnings
 after the close today, or yesterday rather.
 FedEx, KB home, and Cerebris.
 Right now checking on those shares,
 we see FedEx down 7%, KB home up 3.5%,
 and then Cerebris down about 14%.
 Speaking of those earnings and today,
 the microns out after the closing bell,
 up nearly 180% since its last results,
 more on that stock and the story coming up.
 We're also watching yields as well,
 still seeing a little bit of a bid to US government debt,
 a drop in at least in yields,
 the benchmark 10 year note yield,
 hovering just around 4.48%,
 the two year note yield 4.195%,
 and the 30 year long bond 4.92%.
 Also energy prices continue to be in focus
 as we track the sharp drop off in crude oil prices
 as Iran, US peace talks continue,
 and Hormuz ship traffic tries to rebound.
 US benchmark West Texas intermediate,
 off nearly 2%, $71.82.
 Ice Brent crude futures,
 the world gauge down 2% as well, $75.61 there.
 By the way, we're seeing some of the lowest levels
 since the day before the US-Iran War began.
 Now to the broader markets,
 working to recover here in the US,
 following another session of tech-led selling,
 the NASDAQs down roughly three and a half percent,
 so far this week with the S&P down 1.8%,
 the Dow is actually holding on to some fractional gains.
 Now among the biggest drags on the S&P yesterday,
 a number of big names in the AI and semiconductor trade,
 Sandisk, Micron, Vertive, OnSemi,
 Coherent, all down anywhere from 10 to 13.5%.
 This morning, like the broader markets,
 those stocks are looking to recover some of that ground,
 will flip the screen as you can see there.
 All of that red turns into a more modest,
 relatively speaking, sea of green
 for those same semiconductor names.
 For more on that story, let's bring in Tom Lee,
 head of research over at Funstrat Global Advisors.
 He's also a CNBC contributor.
 Tom, I guess maybe the big arching question
 overarching question right now is whether or not this dip
 is the sign or beginning of something deeper
 or whether or not investors should be comfortable
 just buying it.
 We published a note yesterday looking at the 17 times
 that the SEMI index, SMAH,
 had fallen 6% more in a single day.
 May or may not surprise viewers,
 but these almost always occur in the middle of a bull market
 that these sharp one-day drops are not a sign of a top,
 but are actually rather viable entry points.
 One month later, 88% of the time the SEMI index
 higher with a 12% median gain,
 meaning your 6% drop is more than recovered within a month.
 So I actually think this is a buy the pullback moment.
 Is there a concern at all about maybe the valuations
 of some of these names?
 Now, I mean, relatively speaking,
 we know that names like micron and sand disk
 trade at a discount to other parts
 of the semiconductor market.
 Microns, roughly 10 times forward earnings.
 I think sand disk is roughly 10
 and maybe 11 to 12 times forward earnings.
 In videos at 20 right now,
 there are different parts of the market
 and different valuations there.
 Do you feel as though any of the valuations
 across that ship's spectrum feel overwhelmingly
 overbought at this point?
 I mean, in some ways, we know these stocks are overbought
 because technical measures like RSI
 have never been more overbought,
 which is going to put a lot of weight on earnings Wednesday
 for micron.
 But I think when you look at valuations
 for the market overall,
 it's actually cheaper today than it was six months ago.
 The S&P earnings have actually gone up almost $50
 since January of this year.
 So the Ford PE went from 19.4 to 18.4.
 So as viewers might think the market's actually ahead
 of earnings, it turns out the stock market
 still hasn't caught up to the rise in earnings so far.
 All right, that rise in earnings is always a big focus,
 not just for the chip names,
 but for the hyperscalers,
 those mega cap tech stocks,
 those magnificent seven type names,
 we know they've been lagging.
 Is there anything that gets investor sentiment
 turned around for those magnificent seven mega cap tech
 and media names?
 Oh, Dom, I think it makes sense.
 The market is trying to understand
 sort of the new narrative around the mag seven
 because they went from asset like companies
 that produced a lot of free cash flow.
 Now to ones that are more balanced,
 cheap, intensive, actually funding
 what will look like a larger balance sheet,
 I do think investors are gonna start to view
 that balance sheet as a workforce, right?
 I mean, the reason they're spending so much money
 is to replace essentially human endeavors with AI.
 That balance sheet is gonna be deployed
 and generate returns.
 So I think over time investors are gonna start to view
 that as a moat, but you're right,
 we're in a transition period of that narrative.
 All right, so I also wanna bring up maybe the prospects
 for what we think investors want the S&P to be at
 by the time it's done over the course of the next year.
 On CalShi right now, we're showing some of the odds
 that predictions markets traders are using.
 For an S&P to close between 7,600 and 7,700,
 call it 7,800, it's about a roughly 11% chance.
 7,800 is 7,999, a 13% chance
 and roughly 8,200 call it a roughly 12% chance.
 If you total them all together,
 more than a third of these prediction markets,
 better as if you will, investors,
 expect the S&P to be higher.
 Your target is not much more higher than we are right now.
 What gets that to change?
 Well, we're in mid-year, Dominic, we know we're at 7,700,
 so we're at that first bucket
 that you show there.
 I do think there's a case for upside to exist
 between now and year end,
 because as I've mentioned,
 I think earnings estimates just in the first half
 have pushed up next year's estimate by almost $50.
 In the next six months, that could increase again.
 And of course, we think multiple should be expanding
 because there is difficulty to this level of spending
 and of course, if oil prices fall, interest rates fall.
 So I actually lean towards,
 I think our current 7,700 is a low side
 of what's achievable.
 All right, Tom, please do not go far.
 We're gonna see you again shortly
 with the morning call crew later on this hour.
 So keep it or hey, thanks for the conversation right there.
 A lot more to come here on morning call,
 including the high stakes sit down
 between President Trump and defense contractors
 and the White House demand centered around the Iran war.
 Morning calls back after this.
 Welcome back to morning call.
 President Trump is summoning the heads of the biggest US defense
 contractors to the White House today
 to discuss increasing production of munitions.
 Mid-concerns about dwindling weapons stockpiles
 due to the Iran war.
 CMBC has confirmed Honeywell will attend the meeting
 while reports say Northrop Grumman, Lockheed, RTX,
 BAE systems and Boeing will also be there as well.
 Joining me now for this conversation is Tony Bancroff
 who runs the commercial aerospace and defense ETF
 at Gabelli Funds, G-CAD is the ticker there.
 It's also a former fighter pilot in the US Marine Corps
 knows a little bit about the hardware there.
 So Tony, thank you very much for joining us this morning
 on morning call.
 Let's talk a little bit about the state of play
 as you are watching it play out between defense contractors
 and the White House vis-a-vis the Iran war.
 Just how much of a focus will defense be in the coming years
 given what we've seen with the war?
 Yeah, I think this meeting is just a telltale
 of the expectations of the administration
 and the focus of the administration on replenishing
 our arsenal.
 I mean, obviously in the first five days of the war,
 we expended 1,000 our Gulf partners Israel
 and the United States 1,000 Patriot missiles.
 And the estimate is we have about 5,000
 and we're an inventory before that.
 So I think the administration realizes
 that we need to start building up
 and they've already discussed it with framework agreements
 ramping, tripling quadrupling of missile production.
 And I just think you're going to see that
 against a near-pierre threat like a China or Russia,
 there is estimates that we would expand
 all of our smart weapons in the first few days of a war.
 So I think we're going to see a lot more production.
 During the war, we didn't see a lot of hardware loss,
 ships, fighter planes, we did see some,
 but not nearly the degree that maybe we would have expected
 given a war of this size and scale.
 The focus on munitions is to your point,
 one because we've expended so much of it.
 How much of these defense primes,
 how many of them that are focused more on munitions
 and the component products for them
 will be a focus for investors and portfolio managers
 like you, as opposed to the ones who are more,
 say, pure play on just the equipment
 or the vehicle side of things.
 You know, they all, you know,
 the defense industry, there's a lot of overlap
 with munitions, I mean, all the primes
 that you just put up on the screen,
 they all make parts for weapon systems
 and they all make, you know,
 they make parts for fighter aircraft for F-35.
 They're going to be building both, you know,
 the fleet is getting old, that's the reality
 and that needs to be rebuilt
 and it needs to be rebuilt with next generation technology
 like the fifth generation fighter.
 And a fourth generation fighter going into a modern combat
 environment with, you know, S-300s, S-400s,
 it's likely going to get shot down.
 So you're going to still see a lot of production
 of aircraft as well, you know, obviously the ship,
 the ship build out is huge, getting back to that,
 you know, trying to get back to a 600 ship fleet plus,
 in the coming years is going to take a lot of horsepower.
 And what companies specifically have your attention more?
 Is it those primes, or are we talking some
 of these more next-gen, smaller defense contractors
 doing things like UAVs, drones and everything else?
 You know, I like actually, I like companies
 like Honeywell and L3 Harris.
 They've got some financial engineering going on.
 Honeywell is about to actually spin off
 its aerospace business on Monday.
 And they make the navigation equipment
 for a lot of these weapon systems.
 The 11 of the 12 exquisite weapon systems
 that the administration has, it considers,
 Honeywell puts the Ring Laser gyros on
 amongst other equipment.
 Which is a big part of the missile.
 And then L3 Harris, and sometime in a second half,
 they're planning on spinning,
 IPO-ing a portion of their missile solution business,
 the old aeroget rocket line.
 So we think those are two good opportunities.
 And then we have a third one, actually,
 a company called Albany International.
 They make, actually, they make equipment
 for fan blades for aircraft.
 And they have an industrial business
 and an aerospace business.
 We think those will eventually get split off
 and the aerospace business.
 And they also make parts that can replace titanium.
 They use carbon fiber.
 And we think a lot of,
 we think there'll be a lot of opportunities
 with that company as well.
 All right, Tony Bancroft at Cabelli.
 Thank you very much for the conversation.
 Please come back and see us again soon.
 Thanks, Tom.
 All right, straight ahead on the show here.
 The morning call crew assembles
 team up the training day ahead.
 And why one member says he's growing increasingly
 nervous about rising rates.
 All right, welcome back.
 Here's what to watch today.
 We get new home sales figures.
 We're watching for earnings from, of course,
 micron and paychecks as well.
 The country's largest banks released their latest stress
 test results after the closing bell.
 And as we discussed, President Trump
 is set to meet with defense contractors
 at the White House.
 The president is also set to visit Capitol Hill today
 to sign the Housing Affordability Bill into law.
 We're going to hear more on the Trump Administration agenda
 when Treasury Secretary Scott Bessent joined
 Squawk Box later on at 7.30 a.m. Eastern time.
 It's time now for your call sheet.
 When we look at the topics driving the training day ahead,
 the crew members today are Tom Lee,
 a fun, strikeable advisors, Stephanie Link of High Tower
 and Peter Bookvar of 1.bfg, wealth partners,
 all three are CNBC contributors.
 Thank you guys very much for the early wakeup call here.
 Let's talk markets and AI first.
 And I'll start with Tom on this one.
 We spoke a little bit about whether or not
 this is a viable dip for the markets.
 You said it was what's going to be the focus for you
 on this tech trade in the, say, the next two to three months?
 Well, Tom, as you know,
 and the next two or three months investors
 are going to really care about visibility of demand,
 which we know has been very good.
 And I think we also want to make sure
 that there aren't signs of exhaustion
 of investor ability to buy these stocks.
 And I think, you know, pullbacks like yesterday
 are actually quite healthy because one,
 it's a reset of positioning,
 but it also represents an entry point for investors.
 Stephanie, do you feel the same way
 from a portfolio manager's perspective
 or are you out there with a shopping list in hand
 looking for stuff to get in on?
 Yeah, well, the only problem, Tom,
 is that the stocks is still up 94% year to date
 and the SMH is up 66%
 and the cost is up 94%.
 So the stocks have all had a nice run
 but the demand picture has not changed.
 In fact, it's accelerating,
 if you look at the big five technology companies,
 they're going to spend $800 billion
 this year in CapEx.
 That's going to be 1.6 trillion next year
 and that might even have a plus sign next to it.
 So these companies are tripping over themselves
 to increase their, you know, their CapEx
 and they're going into the debt markets
 into the equity markets.
 And so I don't think it's a demand problem at all.
 What I think you want to do
 is maybe not own those names right now
 because of the heavy intense CapEx cycle,
 but you want to own the food chain,
 you want to own the data centers,
 you want to own the industrials
 that are building out the data centers,
 you want to own the companies that are upgrading the grid
 and also the power companies,
 which we just don't have enough power.
 So I think there's plenty of ways
 that you can be buying this theme,
 maybe not necessarily technology companies themselves,
 but certainly so many other industries.
 Hey, Peter, this AI build out,
 it's now in, I mean, I used a technical term
 because Zillions of dollars,
 because it seems like it just gets bigger and bigger and bigger.
 The overall impact does the economic backdrop
 here in America and elsewhere around the world support
 the kind of stock market that we have,
 vis-a-vis those AI ambitions.
 Well, about half of economic activity
 is tied to the data center construction
 and we know about half the S&P
 is tied to data center construction.
 So we're sort of all in on this
 and as Stephanie said,
 the recipients of that enormous amount of spend
 are doing great.
 I question whether the hyper-scaler investments
 are going to actually lead to proper returns
 and I think these companies are being re-rated
 for years to come in terms of their deteriorating cash flows
 because there's one thing to spend on the initial technology
 but they're also building in a very high level
 of maintenance, cat-backs and the appreciation expense
 that could keep a lid on their earnings growth going forward
 in addition to the growing technology competition
 from China, which also is going to muddy the waters
 in terms of future returns.
 This is an interesting company.
 Okay, I want to follow up on that
 and go to our next topic here
 because it has to do with interest rates.
 Rising rates could be a potential headwind.
 We don't know what it's going to be like
 but the Fed has tilted a little bit more hawkish.
 We know Nvidia, SpaceX and others
 are raising billions of dollars worth of debt capital right now.
 How worried should we be about rates
 and the future trajectory vis-a-vis these markets?
 Well, it seems when you look at the stock market action
 relative to the long-range of the yield curve,
 4.5% seems to be the psychological level
 where the equity market seems to be comfortable
 with it being below but every time the 10-year yield
 gets about 4.5%, I think the equity market
 has some weaker needs.
 So I think that that's just a level that we should watch
 but the interesting thing to me is
 that we've seen this very sharp decline in oil prices
 and the 10-year yield is still stock at 4.5%.
 I would have thought we had seen a bit more relief
 and that we did not, tells me something.
 Stephanie, as we look at portfolio managers take
 on interest rates, we know it factors in evaluation.
 Do you feel like it's going to be a worry?
 The interest rate outlook,
 given some of these tech valuations?
 Maybe for some technology, longer duration assets
 which they are but I think overall the nice thing
 that's happening in the marketplace today
 is you're seeing a rotation
 and you can own a barbell of tech which I do
 but also it's nice to see the financials doing better.
 The consumer, sure, higher interest rates
 will be a headwind for the consumer
 but you have a 33% drawdown in crude prices from the peak
 and that's going to be very positive
 and by the way, we had amazing retail sales last week
 so the consumer continues to spend.
 I think that's a sector that's right for the picking here
 and of course I mentioned earlier the industrials
 just being the beneficiaries of the AI
 is a derivative trade.
 Now Tom, the higher rates have traditionally in the past
 been a bigger relative headwind for small and mid cap companies
 that are a little bit more reliant
 on that kind of source of financing and borrowing.
 We're not seeing that play out this time around
 that fear of higher rates has actually not been a hindrance
 at all for the small cap trade.
 What exactly does the rate picture say
 about what could happen
 when some of these smaller mid cap companies?
 Well, I think the small caps out performance
 has been years in the making
 because they're coming off almost 10 years of underperformance
 and now for the first time we've got an earnings picture
 that is driving accelerating earnings growth
 that this trend of both on-sharing
 and then this downstream effect of AI is boosting earnings
 and a 4.5% 10 year is in the history of bond yields
 isn't really a huge burden for equity markets.
 So I think there's a case for small caps to keep out performing.
 All right, and our last topic of the day
 is gonna be the big earnings report
 after the closing bell, which is gonna be micron.
 It's been maybe that face of the bull market
 and certainly the AI chip trade in the last six to 12 months.
 Stephanie, micron, what are you looking for
 and do you wanna buy on dips?
 I think it definitely wanna be looking to buy
 but this stock DOM is up 268% year to date.
 So I think you can find other names
 that are actually not up as much
 but that being said, we're short memory
 we're especially short DRAMs.
 ASPs are gonna be north of 30 to 35%.
 I think the guidance is gonna be great.
 I think it's gonna be a great report,
 just high expectations.
 Wait for a pull back.
 I'm thinking like 10, 15%, 20%,
 I think that's when you can buy
 and you can get that in any given day.
 Tom is micron a portfolio holding for you
 and just what are you looking for this afternoon?
 I'm gonna kind of echo what Stephanie said
 but I think one thing to keep in mind is that,
 investors have actually benefited
 from sort of taking a longer time horizon
 on a lot of these ideas and in this case,
 whether it's memory or anything related to AI infrastructure,
 there's a lot of visibility
 and that's pretty scarce when you look outside of AI.
 So I think the stocks are gonna do quite well.
 And Tom, within the overall chip kind of sector,
 are there favorite plays that you have right now
 from your perspective?
 Well, I think we like to stick with leadership.
 So to us, it is sticking with for the viewers
 who want to buy ETFs, it's buying SMH and DRAM
 but I also think there's opportunities
 that are gonna merge later as you think about downstream
 for software, which is IGV
 and would still actually think mag will recover later this year,
 the mag seven.
 All right, and Peter, that micron earnings report
 is gonna be a huge focus for the kind of
 micro economic story companies, specific stories.
 What does that gonna, what is that going to tell you
 possibly about the kind of bigger picture
 for the macro economy?
 Nothing really because the AI spend
 is its own universe right now
 and I'm sure micron's gonna have great numbers.
 I do wanna say though, when I hear people tell me
 that micron is cheap, trading at nine times earnings.
 Relative to sales, it's trading at nine times sales,
 which is where it peaked in 1999.
 All right, our morning call crew, Peter Bookfar,
 Stephanie Link, Tom Lee, thank you guys very much
 for the conversation.
 Big micron earnings coming up,
 keep it right here, Swachbox starts right now.