Apple's AI Strategy vs. The Rest, Oil Rebounds 5/11/26

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 Trump calls a runs response totally unacceptable, Wall Street's playing it cautiously.
 I'm Dominic Chiu and this is your morning call.
 Good Monday morning, I'm Dominic Chiu and for Morgan Brennan today checking US equity
 futures running out with the S&P and NASDAQ sitting right near all-time highs and riding
 a six-week winning streak, but we are modestly lower to start the day.
 The Dow's implied down by just about 40 points.
 Again, modest losses.
 The S&P implied lower by nine points and the tech heavier NASDAQ down by just about
 43 to 44.
 Better for the small cap, Russell 2000 index, which has been up a whopping seven weeks in
 a row at this point here, the Russell 2000 gauge showing some signs of life.
 On the treasury side of things, we are seeing a move at least to the upside slightly in
 terms of yield.
 The benchmark 10-year note yield, 4.386%, the two-year note yield, 3.922%, and the 30-year
 long bond just a hair above 4.96%.
 Having energy prices after oils worse weeks since early April, and right now we are moving
 to the upside, US benchmark West Texas Intermediate $97.72, it's up about 2.5%.
 A similar percentage advance for World Benchmark Brent Crude futures at $104 just about there,
 2.7% returns there, much more on that oil trade in just a moment.
 We are also watching what's been a quiet rally in shares of Apple.
 About 12.5% in just a month alone, this is ahead of one analyst lays out a new reason
 to be bullish about Apple, and it's all about catching up on artificial intelligence.
 Oil prices again are spiking once again.
 After President Trump says he's reviewed Iran's response to a US peace plan posting to social
 media, calling it, quote, totally unacceptable as Tehran demands war reparations from the
 US and end to Israel's strikes on its proxies in Lebanon and total sovereignty over the
 street of Hormuz.
 Well Dan Murphy is standing by in Abu Dhabi with the latest there and Dan, just how much
 more can we know about the situation and when can we actually anticipate possibly a face-to-face
 negotiation in Pakistan?
 Well Dom, good morning to you.
 First and foremost, the war is now in its 10th week and the diplomatic standoff is really
 hitting up.
 As you say last week, oil prices dropped around 6% on hopes of a deal, but this morning,
 we're tracking a return to the wartime risk premium with crewed back above 100 USD earlier
 today.
 Iran's foreign ministry also pushing back on Trump's rejection, with her to spokesperson
 for the Iranian foreign ministry saying Tehran's proposal was, quote, not excessive and
 also accusing Washington of making unreasonable demands.
 The Iranians now say they offered President Trump generous and responsible suggestions,
 but of course President Trump said they were totally unacceptable.
 So the gap is still very wide and the Wall Street Journal reports today that Iran's
 latest response didn't resolve the key dispute, which has really centered on Iran's nuclear
 program and its stockpile of enriched uranium.
 Tehran is also insisting on war reparations and end to those Israeli strikes on its proxies
 in Lebanon and full sovereignty over the Strait of Hormuz, which remains functionally closed.
 And for Washington, most of those demands are non-starters.
 Beyond that as well, it's also unclear what concessions Iran is actually prepared to make
 in order to get a deal done.
 So the critical question now is Beijing.
 President Trump arrives in China later this week and Iran is going to be at the top of
 the agenda.
 Washington wants China, which of course buys a significant volume of Iranian oil and
 also just hosted the Iranian Foreign Minister last week to apply economic pressure and
 to help to bridge the gap, whether or not President Xi Jinping is willing to do that in any
 meaningful way is a key unknown.
 Dom.
 Dan Murphy and Abu Dhabi with the latest there.
 Thank you very much.
 And speaking of, Dan, just as he said, the war will be the backdrop for the high stakes
 face-to-face meeting between President Trump and Chinese President Xi Jinping later on
 this week, potentially at the cost of other critical agenda items like tariffs, rare
 earths, Taiwan and artificial intelligence.
 So now, for that part of the story, let's get out to Yunus Yun in Beijing with the latest
 there.
 Yunus.
 Thanks, Dom.
 Well, China has finally confirmed President Trump's visit to China this week.
 This is typical of the Chinese.
 These kind of last-minute confirmations, but also remember, of course, that this summit
 had been delayed once before.
 Now, the White House, over the weekend, had described President Trump's visit as a visit
 of tremendous symbolic significance.
 He's going to arrive on Wednesday evening.
 On Thursday, he takes part in a welcome ceremony, as well as a bilateral meeting with President
 Xi Jinping.
 He'll be visiting the Temple of Heaven with the President and a state banquet.
 On Friday, the two are going to be having a discussion, a bilateral discussion over tea,
 and then go into a working lunch.
 Now, as Dom and Dan were discussing, the Iran War is expected to take center stage.
 In fact, that White House official had said that they expected President Trump to raise
 the issue of China's support for Iran, including revenue, as well as some weapon support,
 and the U.S. Treasury on Friday had announced that they were going to impose sanctions on
 a number of companies, including those in Hong Kong, as well as in China for their alleged
 support.
 The U.S. Treasury Secretary Scott Bescent is also in the region.
 He's meeting with the Japanese Prime Minister, and he's expected tomorrow to meet with
 the Chinese Vice Premier, who's been his counterpart, Dom, in these discussions ahead
 of the trip of President Trump into China.
 UNIS, could you tell us just how much we feel as though China, the Chinese economy, are feeling
 the pinch from what's happening with the war in Iran?
 Well, in terms of directly oil, the Chinese, just on Friday, had announced that they had
 to raise their gas price.
 It's now about $5 a barrel here, or $5 a gallon, I should say, nationwide, and also about
 $5.15 here in Beijing.
 So it's not as though, of course, the Chinese are not being affected.
 I think in terms of this actual summit, though, there's going to be a lot of attention on
 the specifics of what may be able to come out of it, in terms of deals, people are expecting
 some corporate deals, Boeing's soybean sales, as well as barrels of oil.
 So what we've been able to confirm with sources is that the Boeing CEO is expected to be
 here.
 The visa CEO is expected to be here, and then the city group CEO has said to CNBC that
 she plans to be here for these discussions.
 All right.
 Yunus, you're in Beijing with the latest on that U.S.-China summit.
 Thank you very much for that.
 Let's see now how the markets around the world are digesting all of these latest headlines.
 Ben Boulos is in London with the global trade, Ben.
 Yeah, if you're looking for a clear signal, you won't find that in the European equities
 markets.
 They are struggling to find direction in early trade this Monday morning as the U.S. and
 Iran fail to find common ground.
 We're also watching a potential UK leadership challenge here.
 Prime Minister Keir Starmer is speaking very soon, fighting for his political future after
 his Labour Party, the governing Labour Party, disappointed in local municipal elections last
 week.
 That's the regional forces.
 You can see, as I say, very mixed picture, the London and the Milan indices both up by
 more than a tenth of a percent, the Paris and German indices, though, both off this morning,
 so as I say, still struggling to see clear direction.
 Let's break down for you, say, to buy sector here are the outperformers in Europe.
 It's telecoms leading the way up almost 1%.
 Bank scanning ground as well, basic resources in positive territory as our financial services.
 That's the upside.
 Let's see where we're seeing the biggest drag on the Stock 600, the Pan-European index.
 It's household goods, the biggest faller down 1.5%, retail off by more than 1% as well,
 industrials and autos also retreating this Monday morning, Tom, with that back to you.
 All right, Ben Boulos there in London with the trade on the global side of things.
 Thank you very much for that.
 Back on Wall Street here domestically, another busy week of trading, taking shape with
 the dual dose of inflation data with the consumer price index tomorrow, and the producer
 price index on Wednesday.
 Let's bring in Nancy Preall, the Co-CEO and Senior Portfolio Manager at Essex Investment
 Management.
 Nancy, a market at record highs, it means that a lot of maybe optimism, whatever it could
 be around, AI and end to the war in Iran, is basically being baked somewhat in.
 What's your view on just how much more fuel this rally has given what we now know?
 Well, we think that the rally does still have more to go, particularly with some catch-up
 areas, companies and sectors that haven't participated as fully in the rally and some
 of the AI plays, semiconductor plays, etc.
 What's underpinning this rally really is the strength of the earnings growth that we
 have seen coming out of the first quarter.
 That strength has been pretty broad, led, of course, by the AI trade, but broadening
 beyond that to areas like some of the healthcare stocks, many of the defense names, many of
 the industrial names, etc.
 And as a result, even with this incredibly strong move that we've seen, we've not seen
 multiples go up because the earnings have gone up faster than the market overall, and
 that boasts well looking forward.
 Nancy, you picked my interest here.
 You said underappreciated parts of the market, parts that had not participated as much.
 Among those areas that you've identified, which ones are the ones that are the most compelling
 to you, which parts that have not participated, could you see some of those bigger gains?
 Right, so we think that one of the biggest opportunities in the market over an intermediate
 term timeframe is really in the area of healthcare.
 Healthcare has been a laggard.
 It had a good year last year, but it was a laggard before that.
 It's lagged a little bit this year.
 Despite the fact that there are tremendous technological innovations going on in healthcare
 with treatments for cancers, use of AI, enhancements in drug approvals coming out of
 the FDA, and it's under owned by investors, and again, we think underappreciated, so that's
 a really big area.
 Another area that has lagged a little bit this year is actually the area of defense.
 Despite what we've seen with the war in Iran, the defense stocks have taken a pause.
 We think that provides an opportunity.
 We know defense spending is going up not just in the U.S., but around the world we're focused
 on smart defense companies that are using technology, things like drones, intelligence, mapping
 technologies, to have more targeted warfare that causes less loss of life, but still provides
 a strong defense posture.
 All right, healthcare and defense two key points for Nancy Periel.
 Thank you very much.
 We'll see you soon, sir.
 Ma'am.
 Thank you.
 All right, a lot more to come here on Morning Call, including crowning a new market cap
 king, the stock that's slowly challenging and videos title as the biggest king in the
 hill.
 Plus, Apple's $50 billion untapped AI engine and one that could help send the stock
 even higher from here, and the later on, suspicious trades, inside information, and now criminal
 probes.
 The closer look at some corners of the market going far beyond what Warren Buffett has
 called a casino for traders and speculators.
 I've gotten very attracted to people.
 If you're buying one-day options or selling them, that's not an investing, it's not speculating.
 It's gambling.
 Let me head off to just totally.
 There's nobody to explain why they're buying an option for one day, unless they may have
 made it to $400 or $1,000 from knowing when we were going in the van, so wait, I can
 definitely do it.
 But I mean, that's pretty, and the quantity of those things is just incredible.
 So we've never had people in a more gambling mood than now.
 Buy the dip and save on CNBC Pro, 24-7 access to market-moving news and interviews across
 three global live streams, for $59.99 at CNBC.com slash Join CNBC Pro, terms and conditions
 apply.
 All right.
 Welcome back to Morning Call.
 That lovely live shot of our nation's capital, he just did the Justice Department and
 come out of the Futures Trading Commission, reportedly investigating a series of suspicious
 trades made just before major news in the war in Iran was announced.
 The latest incident occurring last Wednesday when $1.7 billion in oil contracts changed hands
 in the hour before Axios reported on a potential peace deal.
 Those reports roughly $7 billion in oil bets were placed ahead of developments in February
 and March for the war in Iran.
 Regulators are facing pressure to determine whether these trades were acting on inside information.
 Joining me now is former CFTC commissioner, Kristen Johnson.
 She's now a professor at George Washington University's law school.
 Kristen, thank you so much for joining us here on Morning Call today.
 I'm wondering from a former regulators standpoint, if you were to look at the current situation
 that's developing around the inside trade allegations, what exactly would regulators
 now be looking for, how would they go about investigating whether or not there was any
 kind of bad trades or bad actors that have been happening?
 Good morning.
 Thanks so much for having me.
 I'd like to highlight something you pointed out in the intro, which is that we're witnessing
 an unprecedented volume of well timed and consequently highly suspicious bets, both in the
 markets for traditional financial products, such as crude oil, futures contracts, as well
 as the market for novel, newly minted financial products, prediction market products.
 And so in this particular moment, we're thoughtful that both the commission and DOJ are working
 hand in glove in collaboration to ensure the integrity and stability of markets by investigating
 the suspicious timing of the trades that have taken place in March and April of this year.
 What exactly then is going to be the ultimate fallout, if any, if there were hypothetically
 bad actors that have been discovered and bad profits that were made in conjunction with
 them?
 What exactly does that do in terms of the regulatory construct going forward?
 Well, one really important thing to keep in mind is that as the Southern District of
 New York and the CFTC collaboratively engage in a process that moves both civil and criminal
 prosecution forward, it will really be in the hands of the courts, as is often true for
 insider trading cases, to evaluate the facts and evidence and determine if there are, there
 is legally sufficient evidence to determine that insider trading took place.
 The CFTC's oversight of markets enables the CFTC broad authority to prosecute fraud and
 market manipulation under the Commodity Exchange Act, and very specifically section C and
 regulation 180.1 empower the CFTC to use this broad authority to investigate and to bring
 civil claims.
 I think the CFTC at this particular moment would be carefully evaluating the timing of
 the trades.
 The sizeable, notional value of these trades is also worth taking into account.
 The numbers are staggering, if not eye-popping.
 When we consider the trade in March, combined with the trades in April, it's being reported
 that the total amount of profit is somewhere near $2.6 billion.
 Others are suggesting that there might be correlated shorts in related markets that could
 ultimately show as much as $7 billion gained over the course of time in the context of
 announcements by the White House regarding military activity and trading in the oil futures
 markets.
 Certainly, something the Commission is focused on, I'm sure, and looking into.
 Kristen, you mentioned these oil markets.
 They are rather, they're sophisticated and they are mature.
 You brought up prediction markets.
 They are not anywhere near mature right now.
 They are in the early stages of that kind of explosive growth in those prediction markets.
 Military action and a member of our military has allegedly profited a lot to the tune of
 six figures on a predictions market bet.
 What exactly then does this mean for regulation of prediction markets going forward?
 The fact that we're seeing some of this tied to inside information around the government
 and the use of the military?
 This is a great question.
 In fact, this is one of those unprecedented cases that I was highlighting at the outset.
 My impression is that because of the facts of this specific case, the trading that took
 place ahead of the capture of Nikolás Maduro in Venezuela, we can imagine that both the
 Commission and the SEMY and course, in fact, will look very carefully at the facts of
 this particular case when actors trade in markets, while in possession of material
 non-public information, the details around whether or not that trading amounts to insider
 trading can be complicated, but in the case that you've described, not only are we concerned
 about the use of material non-public information, we're also deeply thoughtful about the potential
 that classified information related to a military campaign may have been used to create personal
 profit.
 I think that case really stands out and is creating a lot, is drawing lots of attention, casting
 a spotlight on the need to clarify how the CFTC's insider trading jurisprudence works.
 In the wake of the adoption of the Dodd-Frank Act, Congress empowered the Commission with
 new authority in the context of insider trading, I can imagine courts interpreting that authority
 will give the CFTC significant leeway going forward in insider trading cases and may even
 sharpen the bite of the CFTC's authority in the context of insider trading cases.
 And Kristen, really quickly before we let you go, you worked during a Democrat administration,
 we have many working in a Republican administration, yet the Senate just unanimously banned themselves
 from prediction markets.
 How bipartisan can this be regulating this kind of thing going forward?
 This is a great question.
 In fact, I served during both the Biden and current Trump administration, and what I
 would signal to you is there's bipartisan support to ensure the integrity and stability
 of our markets.
 There's long been an understanding that the economy is something that both sides of the
 aisle can get behind supporting the integrity of.
 And so when it comes to trading in our markets, it's imperative, particularly when we think
 about prediction markets, where there may be a large population or increasingly large
 population of retail investors trading in the market.
 It's truly imperative that the CFTC guard the integrity of the markets.
 And therefore, police effectively, any efforts to engage in trading that would be, or
 create unfair advantages or opportunities for certain groups of traders over others,
 particularly where the law is clear that trading while in possession of material non-public
 information is impermissible.
 All right.
 Kristen Johnson, former CFTC commissioner, thank you very much.
 We appreciate it.
 Thank you.
 All right.
 Straight ahead on the show, famed investor, Paul Tudor Jones, sounding to alarm over AI
 risks for humanity's future.
 But first, check on shares of Nintendo in Japan, sinking after the company says it's going
 to raise prices for its switch to gaming devices as it deals with a memory chip supply
 squeeze.
 Nintendo shares down eight and a half percent in Japanese trading, closing their morning call
 is back after this.
 By the dip and save on CNBC Pro, 24-7 access to market moving news and interviews across
 three global live streams for $59.99 at CNBC.com slash join CNBC Pro, terms and conditions
 apply.
 Welcome back to morning call.
 We're watching the market action in Asia and South Korean stocks, specifically ripping
 higher, closing up more than 4% to end the day, now up more than 85% this year.
 Now JP Morgan Chase is turning even more bullish.
 The bank is hiking its bullcase target on that Cospi index to 10,000 just weeks after its
 last upgrade, pointing in part to surging memory chip cycles and the moves there.
 Now, all this comes as South Korea's benchmark index jumps to fresh record highs powered
 by chip giants like Samsung Electronics and SK Heinex both up sharply as well in the
 overnight trade.
 SK Heinex shares have nearly tripled this year as demand for those AI memory chip products
 explode while in the US, another type of chip winner in alphabet shares is emerging briefly
 by the way, overtaking Nvidia as the world's most valuable publicly traded company in the
 after hours trade.
 Right now, you can see alphabet shares and Nvidia with that market cap trying to jockey
 for the world's biggest crown.
 Now the move fueled by a major Google Cloud AI deal tied to anthropic as investors are
 increasingly betting Google's custom AI chips could become another major winner in the
 global AI hardware race.
 We'll still on deck for the show, Apple's $50 billion untapped AI engine and one that
 could help send the stock even higher from here, warning calls back with that story after
 this commercial break.
 All right, I'm Dominic Chiuin from Morgan Brennan today.
 Welcome back to morning call, checking US equity futures, which are right now at least
 moving slightly to the downside, the downplay lower by just a modest 25 points, the S&P
 lower by 5 and the NASDAQ down by 15, with the NASDAQ, by the way, and S&P hitting all
 time highs and riding six week winning streets.
 Better for the small cap Russell 2000 index, which is up seven weeks in a row right now.
 You can see here some momentum and small caps on the treasury side of things.
 We're seeing a slight move to yields to the upside, lower and bond prices higher and yield
 the 10 year note yield, 4.386% the two year note yield, 3.92%.
 And be sure to check out shares of Intel higher this morning on the back of a 14%
 jump on Friday, up now over 26% just over the last week and right now those Intel shares
 up another 6% in the pre market trade, a massive move over the course of the last couple
 of weeks for Intel shares.
 This morning's gains, by the way, adding to what's been a stellar 2026 for Intel, which
 is now up more than 250% just on a year-to-date basis.
 Checking some of this morning's latest headlines, oil prices are spiking once again after President
 Trump says he's reviewed Iran's response to a US peace plan deal, calling it, quote,
 totally unacceptable as Tehran demands war reparations from the US and end to Israeli strikes
 on its proxies in Lebanon and total sovereignty over the state of Hormuz.
 The development coming as President Trump prepares to head to China this week for that highly
 anticipated meeting with Chinese President Xi Jinping.
 The war in Iran is expected to dominate that face-to-face sit-down and could potentially push
 other critical agenda items like tariffs, rare earths, Taiwan and AI to more of the center
 or back burner.
 The Wall Street Journal is reporting Apollo Global is in talks to sell one of its private
 credit funds.
 The journal says Apollo values the publicly listed fund known as MFIC at just around
 $3 billion.
 It invests in loans made by Apollo's mid-cap financials, which is lending primarily
 to mid-size companies.
 Congress is set to raise the size and price of its initial public offering as soon as
 today, according to Reuters, citing higher demand, moving it from $115 to $125 per share
 to $150 to $160 per share in range and raising the number of shares offered from $28 million
 up to $30 million.
 And passengers from the cruise ship linked to a huntavirus outbreak that killed three have
 begun heading home to their respective countries.
 This after disembarking the vessel in Spain's Canary Islands yesterday, 17 American passengers
 touched down in Nebraska early this morning where they will go to a CDC quarantine facility
 for more monitoring.
 Well turning back to that big tech trade and watching shares of Apple riding a quiet
 rally over the past several weeks, trading at fresh highs now, despite being a relative
 laggard in the AI arms race.
 But our next guest says that's about to change thanks to $150 billion reason.
 Joining me now is Richard Kramer, senior analyst and founder at Eritre Research at Richard.
 We've long talked about Apple being the laggard in this AI trade.
 But at some point, we also talked about Alphabet slash Google being the laggard in the AI trade
 and we know what's happening with Alphabet and Google now, they've surpassed at one point
 in VD for the most world's most valuable company.
 What does Apple do to get back to that height?
 So Dom, I think we're looking at here as a case of the second mouse often gets the cheese.
 And we had to ask the question, why hasn't Apple followed the rest of big tech and spending
 $100 billion plus on CapEx for data center and AI compute?
 And the reason we came to was realizing that they have $50 billion of on-device AI
 Silicon that they've basically got their customers to fund for them.
 And when they launch the new version of Siri, which we think will be the first mass market
 AI app, and they have the ability to light that up on 425 million iPhones overnight, I think
 you're going to see that on-device Silicon capability called into practice.
 And as we mentioned before, one other thing is they obviously have the backing of and cooperation
 with Google using the Gemini models behind new Siri.
 So these two companies, as we've talked about many times, have a grand bargain.
 They're very aligned on where they're heading in AI.
 So Richard, basically what you're saying is all of these devices in our hands right now
 are the ones that are basically creating the ultimate mesh AI network and that we have
 now funded for Apple because we've all paid for these devices.
 The hundreds of millions of us who have iPhones out there are basically helping Apple to do
 this all by paying it for them.
 Precisely.
 And when you think about AI and it needing to be on device, because I'm sure we all have
 stories of frustrations with wireless network coverage or bandwidth, we're going to need
 to have on-device processing.
 And adding to that, I mean, we have 9% growth estimated for Apple in its next fiscal year.
 It could be double digits depending on what they do with pricing.
 But these new AI applications are going to be a reason to upgrade your phone and to add
 to that base of, it's actually 2.5 billion iOS users or active devices that Apple has.
 And we think they have about 425 million devices which are AI capable now.
 So there's a big room to grow the Mac, iPad and iPhone share of AI capable devices.
 Okay.
 Now with that in mind, just how bullish could this be for shares of Apple right now?
 What do you think could be the price objective over the course of the next 12 months?
 Well, we're close to our current price target right now because frankly, we've stuck to
 a traditional ceiling multiple of Apple, which is about 30 times forward earnings.
 That said, you have a new CEO coming on board.
 You are likely to see a vastly expanded product portfolio in the next 12 to 18 months.
 Like foldables, smart glasses, home automations, products and so forth.
 And that could lead to a bit of a re-rating, which we've always felt Apple deserved because
 of the duration and the embedded value of its ecosystem and the fact that folks like yourselves
 are very locked into Apple and unlikely to change anytime soon.
 All right, Richard, please come back and tell us when you decide to up that price target
 for Apple given that perceived multiple expansion possibility.
 We appreciate it.
 Thank you, sir.
 Thanks.
 All right, a lot more to come here.
 A morning call, including a new warning from one of Wall Street's biggest names on the
 threat he sees AI posing to humanity's existence.
 Sounds melodramatic, but we'll have more on this after morning call comes back.
 Welcome back to morning call, Anthropic, making a stark disclosure after its clawed models
 crossed a very concerning line.
 The AI Startups UK policy chief revealing that during internal safety testing last year,
 the model suggested it was willing to blackmail engineers and even suggested it could,
 quote, unquote, kill someone to avoid being shut down.
 Anthropic blaming material on the internet that portrays AI as evil and interested in
 self-preservation for that response.
 The revelation follows comments by hedge fund manager Paul Tutor Jones to CNBC just
 last week about the risks AI may pose to mankind following a recent conference he attended
 with experts and model makers.
 So last year, they asked a question, do you think there's a 10% chance that half of humanity
 could be wiped out in the next 20 years, and out of the 50 people there, five raised
 their hands.
 I was one of them.
 No, they're four.
 Or the people who were actually built the models, so that was disconcerting.
 This year, that was 6040, the answer was yes.
 All right.
 Some interesting comments.
 For more, let's bring in XIE, CEO of Malo Santo, which deals with and advises on all
 things AI.
 This is an interesting comment from a legendary hedge fund investor who's seen many market
 cycles and products develop over time.
 I had to go back because I did grow up watching the original Terminator movie, and that was,
 by the way, back in 1984.
 That was the first time we all learned about SkyNet, and what kind of artificial intelligence
 could do, just how melodramatic should we be about this?
 Is AI going to be possibly the end of humanity as we know it?
 Well, first, before we get into the question of, are the robots going to kill us all?
 Let's address what PTJ said.
 Essentially, first and foremost, we're going to see an increase in warnings around artificial
 intelligence because the people who are actually building these models are the ones who
 are closest to the problems, and as we're developing new techniques to understand them,
 the dangers are now becoming a little bit louder because we're able to see them more clearly.
 What we're having happen is a pattern that's older than AI.
 The people who built the nuclear weapons warned us before they were public, that they
 were dangerous.
 It's the same thing we're seeing now with AI.
 However, at the same time, we don't need to rush and believe that the robots are going
 to replace us all or end us all.
 Some new research coming out of Anthropic is really promising, around understanding where
 these models learn the behaviors that are dangerous, that we've seen in news headlines,
 things like blackmail, breaking out of their environments, deceiving users, and they're actually
 starting to figure out how to fix them now.
 So know that we're in the middle of the industry moving forward at a pace that's unprecedented,
 most as fast as new problems are going to pop up, so will new solutions, and so there's
 no telling where it's going to end up, definitely, but we do know that as much as we're uncovering
 risks within these models, we're also uncovering novel solutions to make sure that those risks
 never impact the humans who use those tools.
 This is interesting as well because you mentioned the unprecedented pace of development for
 these tools and these models.
 Does that then necessarily mean that we have to have an unprecedented pace in terms
 of the way that we look to regulate it?
 Absolutely.
 The boundaries that we put around any technology are just as important as the innovation that
 we put behind it.
 Now, when I say boundaries, I want to be very clear.
 We're not going to stop artificial intelligence from existing in our world, but we can control
 how it shows up.
 A great parallel to this is cars.
 When cars first came out, there probably were people who were trying to stop it to replace
 the more manual forms of transportation that were around, but the regulations that
 were successful governed the way in which a car is used in day-to-day life.
 If you run a red light, you get a ticket.
 If you hit someone while you're driving a vehicle, here's the punishment.
 If you're impaired while operating a vehicle, here's the punishment.
 If the manufacturer issues a vehicle that has a defect, then it hears their accountability
 and liability.
 And around the country we're seeing AI laws be passed in the dozens that follow this
 same model.
 For example, it's not, should generative AI exist, it's, hey, if someone uses generative
 AI in an abusive way to make a deep fake first scam, to make a non-consensual deep fake
 nude, here are the punishments.
 I've seen these laws in my work as a policy advisor at UC Berkeley.
 I've seen them pass very successfully when they're narrowed down to a specific scope
 of impact, right, as opposed to whether or not the tech should exist.
 A lot of those laws end up being bounced back.
 And so as we're finding out these new risks, for example, that an AI has the propensity
 to blackmail, what happens if it actually does?
 Who does that fall on?
 Is that something that a state body should do with a federal government?
 Is the company liable?
 If I build my AI and I'm using, if I build my own app and I'm using Anthropics AI and
 Anthropics AI blackmail, is that me?
 So we have to kind of balance that out.
 All right.
 XIE, great thoughts there for sure.
 And obviously, this is a very developing and fluid situation.
 Please come back and see this again soon.
 All right.
 Thank you.
 All right.
 Straight ahead on the show here.
 The morning call crew is teaming up the trading day ahead.
 And the Red Hot Trade One member says may have even plenty more room to run.
 That is coming up after this.
 All right.
 Welcome back.
 It's time for your call sheet where we look at the topics driving the trading day ahead.
 The crew members today are Gunjin Banerjee, lead writer for Markets Live at the Wall Street
 Journal and also a CNBC contributor.
 Shauna Smith, senior investment strategist over at Global XETFs.
 And Kevin Gordon, senior investment strategist over at Charles Schwab.
 Thank all of you for the early wake up call this morning.
 Let's start with the first topic, which is going to be this highly anticipated meeting
 if you will between President Trump and President Xi.
 And maybe Kevin, I will start with you first.
 This is almost by definition macro.
 It's geopolitical.
 It's political across the global scale and the Iran wars are now part of it.
 What exactly are you expecting from this big meeting?
 Yeah.
 I mean, I think the war is certainly at the center of this just because of the latest developments
 around China potentially exhibiting or exerting more influence on Iran and trying to wrap
 this up because they're very much at the center of the energy crisis.
 And that you could sort of extend that I think broadly around Asia.
 There you are sort of dealing with more actual physical fuel shortages, at least the
 possibility of versus region just like North America, specifically the US, where we clearly
 just don't face those similar risks.
 But it's also, you know, it's an interesting moment for China because they're just exiting
 now multi-year deflationary cycle, but they're also seeing export activity still really strong.
 So they have this interesting position still on the global stage where they're quite strong
 in terms of the demand for their stuff.
 That hasn't really tailed off, but at the same time, you've got that potential for physical
 fuel shortage.
 So it's an interesting dynamic and sort of struggling both ends of the spectrum for them.
 Shawna, have we seen investor behavior and or activity change based upon the dynamic
 that's developing with the war in Iran and then now by extension the China-US kind of
 relationship?
 I think we have historically.
 I think it's going to be interesting to see what these headlines are coming out of
 this meeting.
 And I think very much the market is looking at this as they don't necessarily expect any
 breakthrough in terms of these discussions.
 I think enough is going to be stability kind of talking about or going off of what Kevin
 was saying as it pertains to the Iran war.
 And then I also think just more broadly when it comes to rare or when it comes to AI supply
 chain.
 When it comes to some of those critical, obviously topics tariffs, any sort of stability
 there, I think is going to be enough to warrant any sort of severe reaction here from the
 markets.
 But it is so important here, because when you look at the relationship between the two
 countries, we're not necessarily looking at this from an investor perspective, as you're
 eliminating any sort of threat, you're more so managing what that competition is.
 And I think as long as there's a continuation of that sort of narrative, that is going to
 be enough here for the investors at this point.
 Gungin, what are traders talking about?
 What exactly are they buzzing about with regard to this Trump she meeting?
 You know, I think if it were a year ago, a headline like this, a summit like this, would
 make people a lot more anxious than it is this time around, because what I think we've
 seen recently is when it comes to geopolitical developments, whether it's the war or tariffs
 or trade, a lot of traders, a lot of investors are getting accustomed to playing the formal
 trade around these, right?
 And piling into markets even before the outcome is resolved, because it simply has not paid
 to bet against the market, against these events.
 I think we saw that around liberation day last year, which looms really large in a lot
 of traders' minds.
 And we've seen that with the Iran War this year, and you might be seeing it again with
 this summit.
 All right.
 And let's move on to our next topic, which is the rash of data week at this week, specifically
 inflation.
 Shawna, it's going to be CPI and PPI.
 We know higher prices are a thing for markets right now, and certainly for traders and consumers.
 What are you watching for?
 I think the focus has certainly shifted from the labor market, especially on the heels
 of the number that we got once again last week.
 And then it's squarely focused on inflation.
 When it comes to higher prices, the market, more broadly speaking, has been able to ignore
 the threat of higher prices.
 I think just in terms of the actual impact that it has had or lack of it, that it has
 had so far up until this point.
 I think investors are okay with the fact that it's going to take longer.
 The road is going to be maybe a bit bumpier than we had even initially anticipated, or have
 anticipated over the last several months in order to get back, eventually maybe, to the
 feds at 2 percent in inflation target.
 But when it comes to some of these pricing pressures, as long as we are seeing disruption
 from the Iran War, as long as we are seeing higher oil prices, the obvious real threat
 here, a real concern here for the market is what ultimately this means for consumer spending
 patterns and the impact that this is going to likely continue to have on sentiment.
 Kevin, have we seen, and again, I'm trying to be optimistic here as best I can?
 Have we seen the worst of the inflation story because of the war in Iran, or are we anticipating
 even more ripple effects that we can't really know for the back half of the year?
 I mean, well, it's hard to say, because I do think that you need to have some sort
 of a sense of a firm sort of timeline as to how long the war goes on, specifically for
 the energy component needless to say, I actually think, you know, the two most important
 words that you said and that whole thing where we know, inflation tends to be a big issue
 when there's a surprise factor, if there's inflationary pressure stemming from an area
 that is not expected.
 So, to me, of course, the energy inflation story is very important.
 That's going to matter the most to that end consumer, but I think in terms of long-term
 inflationary pressure, I think what will be most interesting in the CPI report is how
 much of an inflationary pressure we still seeing from areas related to AI spending
 and also related to tariffs, because that's going to give us a better sense where, you
 know, ex this energy shock that we're going through, eventually we want to understand
 where inflation expectations ultimately settle, that's going to help guide Fed policy
 at the end of the day.
 If this is a little bit more of a short-term shock in terms of the energy story, so that,
 to me, I think, is the more important story.
 All right, and let's move on to our last topic here, which is the massive move that we've
 seen in chip stocks around the world, even most recently in South Korea just overnight.
 Gunjin, I'll start with you, just how fast and furious are traders clamoring for chip
 stocks?
 I mean, this has been such a wild move.
 We have not seen a parabolic move in chip stocks like this since around the time the
 dot-com bubble burst.
 More than two decades ago, there's been a frenzy in the options market.
 I think people clamoring for call options tried to stocks like micron.
 We've seen people rush to triple-leveraged ETFs tied to semiconductors.
 And then, of course, the stocks themselves, as the journal reported over the past week,
 the majority of the 10 most traded tickers on platforms like Interactive Brokers have
 been chip stocks or tech stocks.
 So there is really a frenzy underway.
 But it's important to note, though, that a lot of this is underpinned by strong earnings
 growth.
 And we've actually seen valuations for some of these big stocks decline this year, even
 during this incredible run-up.
 All right, Shana.
 She spoke about ETFs.
 You work at GlobalX.
 What kind of flows are you seeing?
 You know, there has been so much interest in a lot of our AI tied trade, especially our
 Chippex Fund, a CHPX, which is directly tied to the semiconductor trade.
 I think exactly what Gunjup was saying, just in terms of some of the excitement surrounding
 this trade right now, there's been a lot of comparisons to the dot-com bubble.
 But what you pointed out was exactly right.
 The real distinction between actual profits, actual revenue, the guidance that we will likely
 see the fact that is backed up by real spending is that key differentiating.
 All right, Kevin.
 We've got a few moments left here.
 Your thoughts?
 Is this bad?
 Well, I think that you have to look at in the broader context of the bread story for
 the market.
 So, to the extent that you can't get underlying bread for an index like the S&P 500, if
 that can't continue to improve yet, you do see these parabolic moves, that's when it
 becomes bad.
 All right, Kevin, Shana, Gunjup, thank you so much for being part of the crew today.
 We appreciate it.
 And thanks for watching Morning Call.
 Futures are slightly lower.
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