AI spending, Fed policy and market rotation drive the outlook 7/29/26

AI Summary

Transcript

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 Another chip slip.
 I'm Morgan Brennan, and this is your morning call.
 Good Wednesday morning, and especially good morning to our VIP
 viewer this morning, Remi.
 You're supposed to be sleeping, but since you're not,
 I'm going to get you in the rest of our viewers.
 Ready for the day ahead.
 So let's start with U.S. stock futures,
 which are mixed this morning,
 although basically around the flat line,
 if you're looking at the S&P in the Dow,
 S&P is literally flat right now.
 And Dow is poised to open basically flat as well.
 And that's that poised for a lower open
 to the tune of about 106 points right now.
 This was after a mixed day for the major averages
 on Wall Street yesterday, with the Dow seeing its best day.
 In about a month, the NASDAQ now riding a five session
 losing streak, and the NASDAQ now down more than 8%
 from its most recent 52 week high,
 hovering near correction territory.
 The losses are even worse for the NDX and NASDAQ 100.
 Big earnings on tap today, though, among them PNG this morning.
 We got Meta, Microsoft Qualcomm after the bell,
 quite a few others.
 We're awaiting the Fed's latest interest rate decision today
 as we'll also take a look at what we're seeing
 in the bond market and treasuries right now.
 We've got yields higher across the curve.
 A US 10 year treasurer yielding 4.61%,
 and the Fed sensitive two year treasurer yielding 4.29%.
 So just below 4.3.
 And energy on the move again as well
 after Iran launched a surprise missile strike,
 surprise missile strike on a US base in Jordan.
 The strike coming just hours after a joint attack
 on Iran backed groups in Iraq by Saudi
 and US forces.
 So some back and forth there in the past,
 called 12, 18 hours, something to continue to watch.
 And you could see crude is responding,
 although we're still well below the levels
 who were just a few days ago.
 WTI is up 3% this morning, trading just below $82 barrel.
 Brent is up 3.5% trading around $87 a barrel
 and our Bob Gasleans up 1%.
 If we turn to a top story, AI anxiety setting in.
 Stocks in South Korea sinking for a second straight day
 on the heels of an earnings miss from SK high necks.
 SK shares now hitting their lowest level in 4 months down
 some 50% from the highs we saw earlier this year.
 So we've got global coverage this morning
 with our own J.P. Young in Singapore
 and Arjun Carpoll and London J.P.
 let's start with you and what has been a very rough session
 wrapping up in Asia.
 Yeah, Morgan. Good morning, Q guys.
 In another rough session indeed for markets in Asia,
 you can see their stocks mostly getting pulled into this chip sell off.
 The ham thing though, once again,
 was able to defy the downturn of one of the only price spots
 closing with a nearly impressive near 2% gain
 and will get in the homecoming just a little bit.
 But since you wanted to talk about chips
 and how it's hit market sentiment in Asia,
 you can just see from the board
 that the chip's a Chevy TIEX in Taiwan
 and the South Korean coffee world with the biggest labors
 really plunging today.
 It got so bad in Korea today
 that they actually had to declare yet another circuit breaker
 that did little to quell the sell off hitting these markets.
 SK Hyde today reported a very impressive second quarter results
 actually opened a degree before getting pulled back
 that was in such a precipitous fashion.
 The finance minister of Korea saying they're going to declare a special meeting
 with financial regulation to discuss the recent volatility
 and he even apologized to lawmakers recently
 about allowing single stock leverage ETFs
 into South Korean market, which some say was a big contributor
 to this new recent volatility over the last three months.
 There's a little bit more new on some way to go into Japanese markets
 because you also start chip stops there
 mostly result of pulling down the Nikkei 2.5.
 But when you brought an outlet from the sell off
 getting QCF and soft bank and other chip-related stocks,
 you'll see some of the more traditional stocks quote-unquote
 such as Toyota, for instance
 and the fast retailing
 actually doing quite well in today's session
 showing that the sell off might be isolated
 towards its chip-related place.
 Similar when you take a look at the Hansen
 which actually closed the degree today
 and in the tech space
 you saw some of the more traditional tech plates,
 like Tencent, like the car maker EBYD
 and other EV makers actually doing quite well.
 But if you look at the AI trade in Hong Kong,
 you'll see here the like of Juku AI knowledge atlas
 and also the likes of SMIC the chip maker
 also getting pulled up quite significantly
 in today's session showing that chip and AI related stocks
 that are also getting sold off.
 It's a similar picture when you take a look
 at the CSI 300 in mainland China,
 closing in the green
 and we did see the star chip index
 and chip-related chip stocks in mainland China
 getting sold off.
 Robots though, doing quite well in the shrugging off the news
 that the US is going to bad Chinese made robots
 from entering their market.
 They actually closed the degree
 and we also saw CXNT the stalwart in the memory chips
 that opened this Monday back to winning weight.
 So there's a lot more nuance now happening
 with regards to the sell off.
 Maybe it's getting contained in the chip space
 and maybe some of the traditional stocks
 are starting to see rotation back into them
 and again also perhaps some strength
 for the likes of CXNT
 and some pockets in the China tech play.
 That's what's looking like, still very painful
 but again a lot of nuance
 and if you're looking for a CXNT in Asia,
 try Hong Kong, Morgan, Happy Hong day
 and hopefully the Wednesday's better for you guys out there.
 All right, sounds good, JP, thank you.
 Well, if we do get a check on US chip stocks
 and the moves that we're seeing right now pre-market
 as well, you can see it's a little bit of a mixed picture here.
 In videos basically flat
 but other names like Micron and Broadcom
 are fractionally lower.
 So let's turn out a senior technology correspondent
 Arjun Carpall in London.
 Arjun, I mean this is, with SK Heinert,
 it's a good example of when a record just isn't enough.
 Also interesting that we're seeing this three weeks after
 a US listing where we got quite a bit of information
 from the company itself and yet a miss.
 Yeah, you're right, Morgan, look very lofty expectations
 because these were record profit numbers
 as you mentioned as well.
 But there is a lot of nuance in the print.
 One thing, the market was concerned about really
 was the revenue miss.
 That was driven actually by a miss
 in the average selling price growth rate
 of SK Heinert's product.
 This is a key metric that's been watched by the market.
 The lower average selling price or ASP
 was actually due to a higher proportion
 of high bandwidth memory compared to its competitors.
 Now, you've got two types of memory, DRAM and NAN,
 both of the prices for this rocketed in the quarter.
 But that doesn't necessarily translate through
 to HBM prices right now because high bandwidth memory
 is actually negotiated on these longer term contracts.
 So the prices you saw in the current quarter
 were actually negotiated prior to that.
 And so they're playing catch up almost as well.
 SK Heinert actually said that it concluded
 some of these long term agreements
 with around 10 customers this year.
 And that really explains the miss hit for the numbers.
 The market thought higher DRAM and NAN prices now
 would immediately to higher revenue that they had forecast.
 But that's not really how HBM works.
 Given the dynamics of the memory market is changing so much.
 SK Heinert said on the call that shipments
 of some of those higher value products
 will push to the second half of the year.
 And as their next generation HBM ramps up
 and they said DRAM shipments rise in the second half of this year,
 this will have a positive impact
 broadly on the company's blended average selling price as well.
 So that should be positive.
 That's the ball case.
 The bare case, of course, is that memory is going through
 its classic cycle we've seen historically
 with more supply coming online for DRAM from China
 and from other places as well, like Samsung and Micron.
 But the key here really over the longer term for SK Heinert's
 is can it set strong pricing for high bandwidth memory
 to sustain its profitability and its margins
 which were over 83% in the quarter, by the way,
 over a longer timeframe when supply eventually
 does catch up to demand Morgan.
 Yeah, Arjun, great breakdown.
 Devils in the details here is super interesting
 because even as we see SK Heinert's trade down
 nine and a half percent in Korea overnight,
 SK Heinert's ADRs, the shares here in the US,
 basically flat right now.
 So that's going to be something to watch
 as we go through the US trading day as well.
 Arjun, Capral, great to have you on breaking it down.
 Thank you.
 Let's stick with the overseas action,
 see if the European tech sector is faring any better.
 Plus, we've got some big banks out with results today
 on that continent.
 Ben Boulos is in London with all of it, Ben.
 Yes, Morgan and European shares trading,
 a little more softly this morning
 as that global chips sell off.
 Arjun was talking about really ways on sentiment
 but investors on this side of the Atlantic
 also closely watching key bank earnings
 with the Fed meeting, also in focus.
 This is the picture on the current equity markets
 in Europe as the session has progressed since the start.
 Three of the main bosses have tipped below the flat line.
 The FTSE 100 slightly insulated given the oil price rise
 that has pushed up some of the oil and gas majors.
 That basket of stocks up around about 1%
 on the stock 600-a-pan European benchmark.
 But let's focus in on the banks
 because UBS reported a pre-tax profit of $3.6 billion
 in the second quarter, flagging strong client momentum
 across its businesses.
 The Swiss lender posted $36 billion
 in net new assets at its global wealth management unit
 while its investment banking business reported a 31% year
 on year increase in revenue.
 It's not the only big bank that's been reporting
 because Deutsche Bank has also posted its latest results
 reporting second quarter profit after tax of 1.9 billion euros.
 That represents a 10% gain and a record for that period.
 Germany's largest lender pointed to strong growth momentum
 and cost discipline.
 Morgan, back to you.
 All right, big Ben with a big banks.
 Ben Boulos, thank you.
 Well, back here in the U.S. investors preparing
 for the Fed's latest rate decision
 followed by Chairman Kevin Worsh's press conference.
 That's gonna happen later this afternoon.
 Majority users on CalChi believe
 that the central bank will hold steady on rates
 with just under 25% thinking that a hike could be on the table.
 Tomorrow, let's bring in Kevin Mann,
 opinion and wall asset management
 and Daniel Carter,
 a Fort Washington investment advisors.
 Great to have you both here.
 Okay, I just show of hands before we even jump into this
 down to men.
 I want to know,
 do both of you think that we've got a Fed that's on hold?
 Yes, absolutely.
 All right.
 Okay, so we've established the consensus
 for this conversation.
 With that in mind, let's get into
 and Kevin, you're sitting here on set with me,
 so I'm gonna start this with you.
 What are you watching both from this decision
 and from Chairman Worsh's press conference?
 What could move the market here?
 Yeah, I continue to go back and forth, Morgan,
 whether or not Kevin Worsh is a dove and hawks clothing
 or a hawk and doves clothing, I can't figure it out.
 But what I do know is he's a reformer,
 and he's gonna look to change the manner
 in which the Fed communicates, the manner in which the Fed operates
 and the data that they use to make their decisions.
 Today, they don't do anything with interest rates.
 They don't meet in August.
 Their task force continued to work.
 I think in September,
 we're gonna learn a lot more from those task forces
 in terms of what they're gonna do
 with the size of their balance sheet.
 Remembering that influences the longer in the curve.
 And if, in fact, there's gonna be any interest rate activity
 on the short end of the curve.
 I think they pause for the balance of this year,
 minus any other geopolitical events, spiraling out of control,
 but we're gonna learn a lot more in September
 than we will following today's meeting.
 Yeah, and in terms of geopolitical impact, Daniel,
 I mean, we know energy prices, what's unclear is
 though their energy prices higher
 and energy prices are going to be transitory or not.
 So if we put that to the side at least for now,
 what are you watching, especially as we have a market
 with less communication from the Fed now,
 that is already doing some of that tightening work for the Fed.
 Right, so today, I think the best,
 the most important thing to watch today
 is not only the rate decision,
 but how many decents we get,
 what's the tone of the statement?
 Is there any clue as to what they're looking at
 in terms of future data?
 But ultimately for us,
 I think what's gonna drive the defend decision is the data.
 And what we've seen since the last Fed meeting,
 is growth data that's been okay,
 maybe on the softer side.
 And the inflation data has been soft across the board.
 So, you know, I think the task forces
 and those types of things are a little more longer term.
 But I think if you just follow the data
 and the Fed's gonna react to the data,
 it definitely supports a hold today
 and I agree a hold for the rest of the year.
 Do you think Kevin that higher rates,
 higher borrowing costs are in fact weighing
 on some of these tech companies right now,
 which is why we're seeing this great rotation?
 To an extent, I do.
 But I think the larger scale volatility
 is coming more from investors who continue to poke
 at this perceived AI bubble,
 almost hoping it's going to burst.
 So I think it's less about the financing.
 I think it's less about these circular financing deals
 and more about concerns over the amount of spending.
 And to me, it's those companies
 that aren't spending enough
 who are likely to fall behind in the AI race
 more so than those companies that are spending too much.
 Yeah, I mean, it's interesting.
 You could make the argument.
 And I've seen some strategists do this, Daniel,
 that, you know, the hyper scalers
 are almost having a bigger, more outsider,
 the potential of a bigger, more outsized impact
 on what we're seeing with inflation
 versus the policy makers themselves
 because they are spending so much
 and they are driving demand for so many things like memory
 and other, you know,
 other components and other parts of the market,
 labor services, all kinds of things here.
 So do you want to get your thoughts on that?
 But also what that means when you look at fixed income
 since the picture there is getting increasingly,
 I don't know, should I call it intriguing, complicated,
 different, opportunistic?
 Yeah, I mean, in terms of bonds
 and how we're trading now versus where we have been before,
 you know, the lack of forward guidance from the Fed
 and really lack of, you know, understanding
 how the Fed's interpreting the data has caused more volatility
 and I think that's going to be here to stay.
 We're with a 35% chance or so of a high priced in today.
 We haven't had that kind of a coin flip narrative
 in quite some time for a Fed meeting.
 So I think that is a feature
 that is going to be consistent as we go forward.
 In terms of, you know, hyperscalers and tech spending,
 it's obviously been an important part of driving demand here
 in the U.S. and it's really a short-term long-term impact.
 Right? So you've got the short-term impact
 of all the construction and the labor and the resources
 and the prices there with the supply constraints,
 but ultimately, is that going to be deflationary or disinflationary?
 You know, the jury's still out on that,
 so we have to deal with the near-term impacts now.
 And that's what the Fed's going to have to decide
 is this type of inflation, something you can look through
 to get to the other side where it might be disinflationary.
 Okay. Daniel Carter and Kevin Mon.
 Great to have you both here to kick off the hour.
 Appreciate it. Pleasure.
 And what's probably going to be the busiest week
 from a news perspective of the summer.
 We'll see. A lot more to come here on morning call,
 including one-on-one with a retail trader favorites
 and NVIDIA AI partner,
 Henguin Solutions,
 what the CEO is seeing on the front lines
 of this AI build out.
 Plus, much more on the tech trade
 and what to expect when meta and Microsoft report today.
 And later, why this week's restaurant earnings
 are about so much more than burgers and burritos.
 Let's see what the investor appetite brings.
 Very busy hours still ahead with morning call returns.
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 Welcome back to morning call.
 NVIDIA may have lost its crown
 as the world's most valuable company,
 but its reputation as an AI kingmaker
 is still strong as ever.
 One of the latest AI infrastructure technology
 giant Henguin Solutions.
 This is the favorite of the retail trading crowd.
 The company was recently named
 and NVIDIA AI Factory Specialized Partner,
 and saw shares surge leading up to that announcement.
 Since then, it's come off its highs,
 but shares are still up more than 145 percent
 since the start of this year.
 So joining me now with more
 and a CNBC exclusive is the president
 and CEO of Penguin Solutions, Cash Shake.
 Cash, it's great to have you on the show.
 Welcome to you.
 We just touched on it a little bit.
 But first to just sort of set the stage here,
 a little bit more specifically on Penguin Solutions,
 what you do, how you fit into this AI tech stack
 and this compute arms race.
 So first of all, Morgan,
 thank you for having me on the morning call.
 Penguin Solutions is an AI Factory platform company.
 We sit at the intersection of two very high demand markets,
 AI infrastructure and memory.
 And what we do is essentially we build
 and manage very large data centers,
 also called AI factories.
 And we do it through our AI Factory platform,
 and our platform is a unique combination
 of differentiated products and services
 designed to offer best token economics
 and measurable ROI for our enterprise,
 sovereign AI and new cloud customers.
 So these are the three segments we focus on
 for our AI infrastructure business, Morgan.
 Yeah, so in light of that,
 when there's such a big debate,
 at least on Wall Street within the market
 around cost of deployment, cost of compute,
 versus that realized return
 and the benefit for the customers and companies
 that are adopting AI,
 what are you seeing on the front lines right now?
 What we are seeing is tremendous demand
 and the enterprises, governments around the world
 and the new cloud providers are racing
 to build the AI factories.
 Whether the enterprises are deploying the AI factories
 for internal efficiencies
 or new revenue generation opportunities.
 But the demand is tremendous
 and there are ways for, let's say, enterprises
 to create more efficiencies.
 So the productivity is valuable for them in terms of the ROI.
 And this is where we come in.
 We have designed products that really create efficiencies,
 especially for these new type of applications
 called agent AI.
 So what's happening with AI?
 AI used to be primarily an advisor
 where we were using tools such as chat GPT
 which is good for giving us the answers and the advice.
 But as AI is moving into the next phase
 with agent AI,
 it is becoming more of an operator.
 What this really means is performing tasks
 in automating workflows
 and it is working 24 by seven.
 This is where ads scale the efficiencies
 and the cost become a challenge for the enterprises
 and they are looking at deploying the factories on premise
 and they come to us and we had them build those factories
 that deliver more efficiencies at scale
 for those enterprises.
 Yeah.
 And certainly we saw a beaten race quarter
 from you just a couple of weeks ago here.
 You talked about that rise of agent AI,
 realization of agent AI, helping to spur the growth too.
 You also have roots in memory.
 Just given the fact that folks are going to be very focused
 on SK high nix and the results we got
 out of South Korea overnight
 and just the debate around memory versus hyper scalers
 right now in general.
 And the fact that you're at that crossroads,
 how would you assess the current dynamics?
 We believe the demand is going to continue
 to increase for memory,
 whether it is the high bandwidth memory
 that is used with the GPUs or the general peppered memory.
 The memory is more of a bottleneck
 and the way I would describe memory is
 memories than new compute, especially with agentic AI.
 So while investors have their own sentiment,
 we believe the demand for the memory will continue to increase
 and especially in the data center.
 So our memory products,
 they are primarily deployed in the data center
 and that demand continues to increase
 and we have backlogs now going multiple quarters
 in addition to growing the business.
 As you mentioned last quarter,
 our business grew 48% year-over-year company wide.
 However, our memory and AI infrastructure business,
 which we refer to as AI-driven businesses,
 represented over 75% of companies total net sales
 and grew over 104% year-over-year,
 which is really a sign in terms of how memory is becoming
 really an enabler for the enterprises
 and customers that are relying on AI infrastructure
 along with the AI factories that where we are helping them
 build the entire data centers.
 So we don't see that demand slowing down
 and we see this as a key enabler for AI infrastructure.
 Okay, cash shake of penguin solutions.
 It's great to have you on. Come back soon.
 Thank you for having me Morgan again.
 All right, well straight ahead.
 Ford shares all revved up after the latest earnings report.
 We got those details in a moment.
 Let's get a check on health insurer stocks.
 The Trump administration will end subsidies
 that helped hold down premiums for Medicare Part D prescription plans
 at the end of this year.
 An administration official says the extra subsidies
 encouraged insurers to raise rates,
 knowing the government would pick up the extra cost.
 About 25 million people have Part D plans
 and they'll find out their rates for next year,
 this coming fall, this of course as the government
 is attempting to rein in some of its spending here
 and healthcare is one of those areas.
 You can see shares are mixed right now for CBS Human
 and United Health. We're back after this.
 Recently, our company softball team lost the big game by one run
 then Dale tried to console us with the quote,
 winning isn't everything.
 Well, Dale and I are very different.
 I get early payout from Beth 365.
 If my team goes that big, I get paid out instantly,
 even if they blow the lead later.
 Sound familiar, Dale?
 Thanks Beth 365.
 Must be 19 or older Ontario only. Please play responsibly.
 If you have questions or concerns about your gambling
 or the gambling of someone close to you,
 please go to connectcentario.ca and see supply.
 Welcome back some morning.
 Let's get a check on some stocks on the move
 on the back of earnings.
 Ford shares jumping despite mixed Q2 results,
 raising its annual profit outlook for the second time this year,
 following rival GM's move last week,
 citing quote, resilient customers who are buying
 its Ford F-150 pickup trucks.
 You can see those shares are about four and a half percent right now.
 We're also watching shares of Visa third quarter results
 beating on the top and bottom line.
 Total payments volume jumped 10 percent.
 Cross-border volumes jumped 13 percent in the quarter
 that trend continues.
 Visa CEO says consumer and business spending remain resilient.
 Those shares are down about half a percent nonetheless pre-market.
 We're also watching three names in the AI space.
 Seagate technology shares jumping after issuing
 first quarter guidance well above the streets estimate.
 And those shares are about almost 6 percent.
 A different story, though, for NXP semi pulling back
 despite earnings and guidance topping analyst expectations.
 Those shares are down about 2.5 percent.
 It's an even bigger drop, though, for skywork solutions.
 Those shares.
 Q3 adjusted margins, missing estimates,
 earnings guidance for the current quarter.
 Also following short and those shares are down about 10 and a half,
 almost 11 percent.
 But as we had to break, we've got a news alert on open AI as well.
 New revelations about its rogue AI agent
 and reports this morning it wasn't just hugging face.
 Sources tell writers a second tech company,
 New York-based Modal Labs, was also targeted,
 though to a much lesser degree than hugging face.
 Those executives say the AI agent was able to explain a vulnerable code
 that was written by one of its customers,
 but stopped short of an all-out hack.
 Morning Call continues next.
 We're watching, by the way, this after a mixed day for the major averages
 yesterday with the Dow and the S&P in the green,
 but the Nasdaq turning in a slightly lower day,
 all but the Dow are on pace for losses for the month of July as well.
 We're watching energy after Iran launched a surprise missile strike
 on US-based in Jordan.
 That strike coming just hours after joint attack on Iran
 backed groups in Iraq by both the US and Saudi forces.
 You can see WTI is up about 3.6% trading around $82 barrel,
 Brent's up 3.9%, trading around $87 barrel.
 If we get a look at treasuries to ahead of that Fed rate decision
 that we will get this afternoon followed by a press conference
 with Chairman Kevin Warsh, you can see yields are higher across the curve.
 US-10 year treasurer yielding 4.61%,
 and the Fed sensitive two-year treasurer yielding 4.3%.
 If we get a check on global markets as well,
 in Asia on the back of SK Heinex's results.
 A lot of volatility there, the cost be shutting 6%,
 officials in South Korea set to hold an emergency meeting today
 to discuss the ongoing market turmoil and a mixed picture
 in early trading in Europe,
 although we do seem to have in general turned lower for the major averages there.
 Now on SK Heinex, those shares closing down 9.5%,
 after dropping as much as 19% in the session for the cost be,
 Q2 earnings and revenue growth failing to satisfy analyst
 heightened expectations for earnings.
 That's despite record results really cross the board.
 A number of other tech names in Asia falling in a sympathy as well,
 and you can see that right there on your screen.
 Names that include Softbank, which was down 7% and others.
 What's interesting though is if you get a check on the chip names
 here in the US, including those SK Heinex ADRs,
 you can see in video where everything's basically higher across the board
 Intel's the big gainer this morning up about 1.4%.
 But last I checked with SK Heinex ADRs, I don't know if we could pull that up.
 Those were trading about flat even slightly higher this morning.
 So we'll watch the trading action here in the US.
 News alert out of Washington as well.
 The Senate confirming Jay Clayton as the new director of national intelligence.
 This was in a 51-47 vote along party lines.
 Clayton, who currently serves as the US attorney for the Southern District of New York,
 will replace Bill Poltie, who had been temporarily serving in the role since June.
 The confirmation coming after Poltie announced on social media a fifth round of job cuts at DNI
 since he took control.
 Some reform and cleanup, perhaps albeit controversially happening at the intelligence department right now.
 Main event for the markets today is the Fed's policy decision investors will then shift focus to earnings from Microsoft
 and meta after the closing bell.
 Looking closely at capital spending, free cash flow, a number of other metrics.
 Alphabet and Tesla both took a hit last week and actually took everything down with them as traders
 soured on their rising cat-backs and declining at cash flow numbers.
 So in April, Microsoft projected $190 billion in total cat-backs this year driven by massive data center expansion
 to man for AI infrastructure.
 Meta has forecast $125 to $145 billion in cat-backs this year, raising that guide in stirring its last earnings report.
 So let's bring in Sarah Kunst, managing director at Cleo Capital for more.
 Sarah, it's great to have you on, it's great to see you, and I think that's where we've got to start.
 Is it cat-backs numbers and the impact to the bottom line that are going to drive investor reaction to these Mag-7 names today?
 These are really different names you have to remember.
 I think that Zuck is back in his legless metaverse era and by that I mean he has a passion project.
 He is going to do what he wants to do and the market is going to have to pull the reins hard if they want him to stop.
 You know, I'm curious to see, well, one, I'm curious to see if he wears the meta glasses on the earnings call,
 but I'm also curious to see if he's going to sort of throw them a bone with some of the reporting we've been seeing about,
 hey, maybe we'll sell some of our access compute to Anthropic or to other names.
 Because I do think that right now he still wants to spend.
 He still thinks that he can kind of cat-backs his way into a really interesting AI product,
 even though the rest of us maybe aren't so sure.
 It's interesting to hear you say that because I know Meta struck another deal.
 I think it's the second one they've done so far.
 This time with BlackRock yesterday.
 For BlackRock to basically take majority ownership of one of their big data centers that's being built out right now,
 Meta will then, I think, leave back and become the key customer for that data center.
 But this idea of shifting some of that spending and some of those assets off of the meta balance sheet,
 is that not in response to the fact that investors do not like to see asset-like companies become asset-intensive companies here?
 And I guess just supporting if he talks about NeoCloud, is that going to matter too?
 I think that, yes, I think that that shift is him saying as CFO saying,
 look, we understand that you don't love this cat-backs and we are going to try to make it as less painful as possible.
 But we're still going to be doing that spending, right?
 This isn't them saying we're going to pull back on so much on the research, on the R&D,
 on the spend of engineers and everything else.
 It's them saying we are going to work to be more creative about maybe making a little bit of money on what we're spending right now.
 And so I think that it does acknowledge reality, which is that investors are not loving this cat-backs kind of race that's happening.
 But we're not seeing a huge sort of back away from it.
 What are your thoughts on Microsoft, which has been very unloved among the hyperscalers?
 I realize cloud and cloud acceleration is going to matter here.
 But also, I mean, it has been trading more like the software players, as of late.
 So I like that. I did not love Microsoft's sort of media rocket.
 Like, you know, that giant ramp up that we had over the past couple of years,
 where it was, oh, yeah, OpenAI has fundamentally changed this company.
 The OpenAI exposure is nice, no matter what that company does.
 Microsoft will probably make some money on it.
 But I don't think it ever made sense in that conversation around sort of super AI hyperscalers.
 So I'm glad to see it being back to just a solid SaaS and cloud provider.
 All right. Sarah, I appreciate it.
 I feel like we only just scratched the surface here, because we've got other names after the belt too.
 I mean, Qualcomm, Samsung tonight, Robinhood, others, so much to get into,
 but appreciate it with the biggest names that investors will be paying the closest attention to.
 Sarah, thanks. Thank you.
 A lot more to come here on morning call, including potential earnings fallouts
 from that outbreak tied to lettuce at Young Brands Taco Bell.
 What it's going to mean as we get those restaurant earnings
 after the bell today and beyond as well.
 Morning Call. We'll be back after this.
 Welcome back to morning call.
 Restaurant earnings are in focus this week, which are pulling young brands among those reporting ahead of those results.
 The two have found themselves caught up in the fallout from the ongoing parasitic outbreak.
 CNBC Food and Wellness Reporter Brandon Gomez is here with a look at what investors can expect from these companies and others this quarter.
 It starts after the bell.
 That's right. I mean, we're really going to drive the narrative with the cyclosporises outbreak.
 Chipotle reports today after the close and investors will hear what Young Brand says tomorrow morning
 as the industry navigates the ongoing outbreak tied in part to lettuce served at Taco Bell.
 Now Wall Street expects earnings of $1.58 a share on $2.197 billion in revenue over at Young.
 And because the outbreak's surface after most of the quarter had ended,
 analysts expect modest impact on Q2.
 Instead, the spotlight is squarely on outlook.
 According to the latest data, daily traffic has fallen by double digits since the FDA linked Taco Bell to the outbreak.
 And young shares are down almost 5 percent since it pulled the suspected lettuce.
 Now analysts have already begun cutting second half estimates as investors try to gauge how long this lasts.
 A meantime, Chipotle knows better than anyone how damaging an outbreak can be after its 2015 food safety crisis
 led to more than a year of double digit same-store sales declines.
 Less tangled up in this particular outbreak, more in focus there will be commentary on consumer confidence,
 value pricing, and whether the current industry-wide scrutiny is impacting demand.
 The key question for both companies, Morgan, is this a short-term disruption like the McDonald's E. coli outbreak in 2024
 where sales recovered within months, or something that lingers for both of those brands?
 Yeah, and I guess we're going to have to see what the commentary is to get a better sense of what that comes in.
 And let time hat play out.
 Either the other piece of this is gas prices.
 When you talk about the restaurant stocks, every time we've seen our Bob futures and energy futures move higher,
 we've seen the restaurant stocks trade lower overall.
 The other name we're going to get after the belt tonight is Starbucks.
 And I realize that's coffee, that's not lettuce, and they have their own turnaround story afoot right now.
 But in general, how to think about more broadly, how consumers are choosing where they're going to spend the money that they do have?
 Well, on the gas price comment that you made, too, I mean that's really an input cost for the companies themselves that they have to navigate.
 But also you see consumers having to navigate their outing occasions, how often they're going out, where they're going to your point, right?
 And where they're spending.
 Starbucks will be an interesting quarter to follow because they did have such a strong report last quarter with a B on the top and bottom line.
 They raised guidance for EPS as well as for same-store sales.
 Foot traffic is improving there, so consumers seem to at least still be out and spending.
 The question is, who's going to capture that value dollar?
 All right, coffee talk.
 Brand to go mad.
 All right, Brand to go mad is great to have you on things.
 Thanks, thanks.
 All right, we're going to hear more from Shabot Lees earnings when CEO Scott Boote writes,
 joins Jim Cramer exclusively a madmate tonight at six p.m. Eastern.
 Well, straight ahead the morning call crew is seeing up the trading day ahead.
 And the big call one member is making around the tech trade ahead of key earnings.
 Welcome back. It's time for your call, shape crew members today.
 Craig Johnson, a paper sailor of Veronica Clark from City
 city and Sylvia Jablonski from Defiance ETFs.
 Lots to get to in a busy day, in a busy week.
 Sylvia, you're right here with me on set.
 It's great to have you.
 I'm going to kick this off with you.
 I think we're going to start with really where the market
 has been focused more than any other place.
 And that is AI and chips trade.
 Just giving the down draft over what we've seen.
 And SK high next results last night.
 Yes, absolutely.
 So sixfold operating margins sound pretty good to me.
 I think this is a case where the expectations were outweighing
 the actual positive results of what's going on there.
 And I think the story is intact, right?
 We're hearing that demand continues.
 We're hearing that the bottleneck continues.
 AI infrastructure, buildout continues.
 Hundreds of billions of dollars by the AI hyperscalers
 going into this theme and look like over the years,
 2010, the 2010 Smartphones 1990s internet bubble.
 You had 10% or more pullbacks happen many times
 before AI leadership continued to go forward and move.
 So dollar cost averaging opportunities, of course,
 be cautious, beware.
 We have to hear what we're going to hear here
 from these AI hyperscalers.
 But as long as monetization comes into the picture
 in the next year.
 So I think the trend resumes.
 Yeah, Craig, I want to get your thoughts on this.
 And we get met up Microsoft to get a number of others
 after the bell, too.
 Those are the big ones I think folks are going to be watching.
 But Microsoft, this jumped out of me.
 Short interest is the highest percentage of the float
 since 2015.
 And we've seen largest increase in short interest
 in Microsoft of any of the Mag 7.
 What is that signal?
 Well, Morgan, I think what it tells us
 is that the Mag 7 trade has been very long
 in the tooth for a while, and it's likely over.
 And you're seeing a reset happening.
 And it's just not about the Mag 7.
 It's just not about the semiconductor stocks.
 And it's a market that's rotating
 into other parts of the market.
 We're seeing clear pickups in healthcare.
 We're seeing pickups in financials.
 And we continue here at Piper Sandler
 to cut back our technology waiting across the board.
 And we have since February.
 It is time to take profits in tech.
 All right, want to get your thoughts, Veronica,
 on what all of this means from an economic standpoint.
 Because obviously we've seen it.
 We've talked about it in terms of impact to the data.
 And this is a day where we get a fed rate decision.
 And if you want to talk about something like potential
 for seeking inflation here, I mean AI is contributing.
 And I'm not so sure monetary policy can change that.
 Yeah, I agree.
 We definitely do see the pressures on prices,
 the own memory costs, and whatnot.
 But the economy is very exposed to this AI investment.
 So from that standpoint, I think I am a little bit concerned.
 Just that so much of economic growth is coming
 from the AI investment, the wealth effect,
 the consumers are feeling that any kind of sentiment
 fullback does mean that the overall economy
 is pretty exposed to it.
 Yeah, I mean, even before the bell this morning,
 we're here at Erning's, Sylvia from the likes
 of Virtiv in Genorac.
 I mean, we've seen, and it almost goes back to Craig's point here.
 Part of this rotation we've seen in the market
 has been to other areas of the market
 that have in turn benefited from this AI buildout.
 Yes, and we've actually seen rotations before.
 So we'll have to see what sticks.
 I do think that there will be a broadening out trade,
 but actually, I link it and tie it to partially AI
 benefiting some of these other sectors in the future,
 particularly healthcare.
 So yes, bank earnings have been great.
 It's good to see M&A, deal flow, equities,
 desk profits coming off and things like this.
 Healthcare's doing a little bit better.
 You know, finally that trade's working out a little bit.
 But I do think that AI has legs,
 and I think that, you know, again,
 as this monetizes, there's a future here.
 And the Fed will probably, you know,
 potentially stay and hold rates.
 I think if the Fed raised rates,
 maybe you would have an additional pull back
 in the near term for equities on that topic.
 Craig, how are you factoring in the Fed?
 And I realize maybe we're not getting as much communication.
 Maybe we're not getting as much guidance,
 but how do you factor in the Fed on hold?
 Maybe tilting a little hawkish here,
 continuing to tilt a little hawkish here into the market,
 especially as you do talk about this great rotation.
 Yeah, so Morgan, the first thing I do
 and I think about the Fed is I go back to my colleague here,
 Kurt at Piper, and he's on hold.
 He thinks that they're going to be on hold
 for the meeting coming up today.
 Now Morgan, the one thing that I'm pulling out
 out of my chart, you know, closet at this point in time,
 is I'm watching the two to 10 spread.
 You're down to 35 basis points.
 And if we do get a hike,
 that's going to narrow even further potentially.
 So as I think about the Fed,
 I'm thinking about the bond market,
 I'm thinking about that spread.
 And again, if that further from here,
 I think people are going to be pulling out
 the inversion playbook,
 and you'll see that in the headlines in a few days,
 if that continues to narrow.
 That's all I'm thinking about it.
 Yeah, we've always seen a stronger dollar, Veronica,
 and you can make the argument that the market is tightening
 and sort of doing that job for the Fed right now,
 tightening conditions.
 The other piece of this, of course,
 I'll frame like this, war and war,
 how does geopolitics factor in here?
 Yeah, I mean, we just have to see what we get today.
 I mean, obviously, rates markets are moving
 with oil prices, but that's what happens
 when the Fed does not really give us a whole lot of guidance
 in terms of what they're going to do.
 The rates market is looking for anything to trust.
 Obviously, the data since the June meeting
 have been a bit softer
 and I think would support the Fed being on hold today.
 But there is this lack of guidance
 that does mean that we're very focused
 on geopolitics right now.
 Yeah, we keep talking about the momentum trade,
 trade more broadly, Sylvia.
 I mean, there's some beneficiaries
 in that amid the geopolitical environment as well.
 I know you're focused on them,
 whether it's nuclear and some of these new energy types
 or quantum or some of these other things,
 trading like momentum stocks,
 but also longer term, new technologies
 that could see demand fuels here.
 Yeah, exactly.
 So I think, again, AI has modernized warfare
 and what you're seeing now is a pickup
 and an interest in a lot of these drone stocks
 and the volunteers and some of these names
 that have pulled back recently are good opportunities
 for investors because I think if these geopolitical events
 continue, the face of war has changed.
 So instead of $250 million dollar missile,
 you have 200 cheap unmanned drones
 as a potential replacement or something right here.
 This space is going to grow
 and investors can essentially pick up these stocks
 through different ETFs and get exposure there.
 But again, with all of these pullbacks,
 I think we talked about it off camera
 a little bit.
 Dollar cost averaging is still a diversification
 is a good thing and markets like this,
 but so is dollar cost averaging
 and getting into AI hate for scalers.
 Yeah, looking before that and the changing relationship
 between the US and Ukraine to understand
 the warfare is changing.
 We got less than 30 seconds, Veronica.
 Last words here, especially as you're focused
 on the labor market.
 Yeah, I think the Fed is on hold today.
 I think the labor market right now,
 the Fed would see us stable,
 but I would be concerned in the next couple months
 that we could see the emerging signs
 of the software labor market again,
 just more reasons for them to be on hold today.
 Okay, we're going to leave the conversation there.
 Thank you to our all-star call crew this morning.
 Great to have you all here.