AI investment and leverage risks shape the market outlook 8/12/26

 Not every game's an all-timer. Sometimes you get a dud. But, at Bet365, boredom is a thing of the past.
 Thanks to their early payout, there's always a reason to watch. And while they can't make games exciting,
 they can help fans get excited.
 Bet365, download the app and see what early payouts all about.
 Must be 19-year-old or Ontario-only, please play responsibly.
 If you or someone you know has concerns about gambling, visit connectsontario.ca,
 terms of conditions apply.
 What made you confident that you could do something that hadn't been done before?
 I have no fear of failure.
 Trailblazing women, changing the game.
 One of my favorite pieces of advice.
 Think about what your boss's boss needs.
 Leadership can look in many, many different forms.
 It really does come down to just trusting yourself,
 like the short, and you just gotta think big to accomplish big things.
 Julia Borsten hosts CMBC Changemakers and Powerplayers.
 New episodes every Tuesday, wherever you get your podcasts.
 Hey, I Rally back on.
 I'm Morgan Brennan, and this is your morning call.
 Good Wednesday morning.
 Let's get a check on US Stock Futures with the Dow coming off with back-to-back
 losing sessions, and actually losing starts to the week.
 We're attempting to reverse some of that here, pre-market,
 a bit of a mixed picture, the Dow down 33 points.
 The S&P points forever, so slight gains to indicated to open up
 five points right now, the Nasdaq 154 points.
 Well ahead of today's July CPI report,
 which is going to be one of those key catalysts here for markets.
 Let's get a check on what we're seeing in the bond market.
 You'll be taking a little bit of a breather this morning.
 US 10-year treasure yieldings, 4.68% fed-sensitive two-year
 treasury, 4.2% and let's get a check on the longer end of the curve.
 The 30-year treasure yielding 5.23% after touching a 19-year high,
 more than 19-year high in trading yesterday.
 Metals and gold, silver as well, trading at two-month highs
 as that precious metals Rally continues here, pre-market,
 golds up another half-percent, 44, 61, and ounce,
 and silver up 2% right now, trading around $66.
 Let's get a check on crypto too with Bitcoin.
 Okay, and let's get a check on energy as well.
 So we see energy prices, oil prices,
 higher this morning, WTIs, about half-percent, $83.56,
 a barrel, and Brent's up 4.61% trading around $89, a barrel.
 The IEA out with its latest monthly oil report in the last hour,
 forecasting that global oil inventories will sink this quarter.
 At more than twice the rate previously thought,
 IEA says oil markets will face a shortfall of 1.8 million barrels per day.
 In all, it's one of the widest deficits that we have seen here
 in five years, and let's get to our top stock story and earnings,
 re-energizing the AI rally.
 First up, core weave, share surging ahead of the open,
 after posting a top and bottom line beat for the most recent quarter.
 Guidance also coming in strong as the AI cloud provider
 announces deals with meta-platforms and a thropic,
 part of its more than $25 billion in new customer commitments.
 Here's CEO and co-founder Mike and trader on the call last night.
 Our near-term capacity remains effectively sold out.
 That is translating into signed commitments
 on increasingly favorable terms from a broadening set of customers
 and is positioning core weave to gain market share for years to come.
 Well, core weave also boosting its annual CapEx spending forecast.
 The stock is higher today.
 It's still down 40% from its October highs,
 not including the pre-market move.
 You could see it's up 18% right now here pre-market bottom line.
 They're going to spend more money,
 but they're saying their backlog grow and overall the call was very bullish.
 Core weave CEO will have more on the quarter when he joins the CNBC
 at 9 a.m. Eastern.
 Also margins were pretty good there.
 Turning to Super Micro.
 Share is also taking off after the data center infrastructure company
 issued bullish guidance for the current quarter.
 Perhaps not so surprising given the pre-announcement we had seen
 the disclosure is a couple of weeks ago,
 but Super Micro expects adjusted earnings
 of between $1.01 to $1.10 per share.
 That far exceeds the 76 cents that Wall Street was expecting.
 Earnings for its most recent quarter also
 obese while sales missus.
 Really that blowout guidance that is pushing the stock up 9% right now pre-market.
 Earnings here sparking an AI rally overseas.
 Let's check in with Lisa Kim and Singapore.
 Karen Cho is in London with the moves.
 Lisa, let's start with you.
 Hey Morgan, the big Asian markets ended the day in the green with South Korea
 leading the gains driven by a jump in AI optimism.
 Korean chip giants, Samsung Electronics and SK Hynex both
 search nearly 9%, but part of their games today are attributable to a
 Korean media report that Singapore's sovereign wealth fund
 is considering investing in them for the first time.
 LG Electronics popped 13% after reports that LG Group Chairman
 Kugangmoo is to meet with Nvidia's Jensen Huang in the state soon.
 Over in Japan, it was really a similar story where AI and AI
 hardware stocks outperformed the benchmark indexing K225,
 but one stock that did stand out was Hello Kitty owner Sanrio stock
 that sank to close down around 18% after its April to June quarter earnings
 came out.
 Both revenue and operating profit not double digit gains from a year ago,
 but until today Sanrio shares had gained 55% reaching their fair value.
 But overall, not a happy hello for Hello Kitty today.
 Good bye, at least for today in trading.
 All right, Lisa Kim, thank you. Let's get to the early action of Europe and our
 Karen Cho. Hi, Karen.
 Good morning Morgan, I don't think I can match Hello Kitty, but I can tell you
 the markets here are a little bit muted in the slow lane today.
 Attention really on that US CPI print investors are looking for those clues
 from the Fed on the rate path ahead and it's all about the data as a result.
 Now developments in the Middle East are in focus high crude prices,
 saying the oil and gas basket of stocks leading gains at a sector level,
 which is influencing what you see.
 There will patchwork session that is playing us here in Europe,
 only slightly in the red for the 4,100, the French market 2.10s down versus gains
 you're seeing for stocks in Germany and the Italian market.
 But the technology news Morgan that you've been talking about really having some
 bearing on ship stocks here in Europe, we are seeing those early gains translate,
 mirroring a strong performance turn that South Korea market overnight.
 And the sector getting a boost after strong results from coal weave
 and super micro stateside.
 In fact, we're building throughout the session almost 3 and a quarter
 percent you can see on infinity and there.
 And we're tracking shares of Vestus, except for their best day and over a decade after
 the wind turbine maker raised its four-year outlook,
 following higher than expected Q2 earnings.
 The Danish companies second quarter adjusted EBIT came in at 446 million euros,
 more than double analyst estimate.
 Of course, it's not been an easy ride around permitting
 for wind turbines in the United States,
 but we're closely watching the second half of the year when it comes to Vestus.
 Morgan, back to you.
 All right, Karen Cho, thank you.
 Let's get to the Middle East and a developing story,
 putting energy traders on alert.
 As Iran backed, Hootie rebels killed six people in an attack on a cargo ship
 in the Red Sea, our Dan Murphy, is following this from Abu Dhabi, Dan.
 Morgan, good morning.
 A fresh geopolitical risk premium in oil here
 after these new attacks on shipping in both the Red Sea and the Gulf of Oman.
 The biggest new flashpoint is in the Babelman Deb Street,
 where Yemen's Hooties have been blamed for that deadly attack on a cargo ship.
 Four crew members killed.
 Two Yemeni rescuers also reported killed in a follow-up strike.
 That is the naval blockade on Saudi Arabia in the Red Sea at work.
 And then, at the same time, tensions also remaining high in the Gulf of Oman.
 The U.S. military in the last couple of hours,
 saying a Navy helicopter fired two Hellfire missiles
 to disable a Panama flagged cargo ship that it said
 was trying to breach the U.S. naval blockade on Iranian ports.
 Morgan, all of this coming with little signs this morning of a diplomatic breakthrough.
 Iran, saying the straight-of-war moves will remain closed
 unless Washington accepts its conditions.
 Of course, as we've been reporting, the president has his own list of demands
 and says the U.S. remains in control of Hallmews.
 And then on oil flows, the U.S. Energy Secretary Chris Wright also saying
 almost nine million barrels a day are now moving through Hallmews
 with total regional flows at around 15 million barrels a day.
 Now, we can't independently confirm that.
 And the talk among traders this morning is that his numbers are well and truly
 above some of the independent barrel counters and tanker tracker figures out there.
 The Secretary doubling down on this, though, saying,
 look, many private businesses are under counting the number of ships
 leaving the straight-of-hallmews due to ships moving covertly through the waterway.
 So, look, the setup for markets this morning is that while some oil flows may be recovering here,
 the security risk around hallmews and Mandab is still real
 and there's no war off-ramp emerging at least for now.
 Yeah, Dan Murphy, thank you.
 I had that conversation with the Energy Secretary last month as well,
 and just the idea that you do have so many of these vessels that are
 sailing dark right now and turning off their trackers and other devices
 from safety purposes. So, perhaps some of that data that we do get directly from
 the U.S. government should be taken particularly seriously right now.
 We'll see. We'll continue to track it.
 Not just energy and the AI trade and focus today, though.
 Investors also getting the latest look at consumer prices with July CPI
 out before the opening bell.
 Dow Jones consensus calls for headline CPI to post a 3.4% year-over-year increase
 core CPI, which is what matters the most to the markets here,
 expected to climb 2.5%. That would be a lower reading in terms of what we're
 expecting for CPI this year. On prediction,
 market Calci only 20% thinking the year-over-year number will be above 3.4%.
 And joining me now, and that's for headline, joining me now is Karen Pye,
 head of equity strategy, head of equity strategy at fiduciary trust with more than
 $133 billion in assets under management and advisement.
 And Karen, it's great to have you on. I think we've got to start right there.
 How important is inflation and inflation reading,
 whether it's CPI today, PPI tomorrow, to this market,
 especially given the fact that we're seeing in real-time oil prices move higher again.
 No, good morning, Morgan. Yes, it's definitely something that is going to be important for the
 markets as it relates to the outlook for interest rates. And I think that interest rates for now
 have been thoroughly well-contained. I think the equity markets have actually been
 really kind of looking past rates for now because we're in a really, really strong
 burning-screws environment, and that allows investors to sort of put rates and inflation maybe
 as a secondary focus, but it could definitely come back more into the forefront of market
 and investor's minds. Should we see risk of inflation increase?
 Okay, so in light of all of that, given the fact that we're coming off of a very strong
 earnings season, you do have major averages that are basically sitting just below record highs
 here. What do you think of the market? Where would you be putting money to work right now?
 Sure, I think that's a great question. I think we've been investing in, we've been believers in
 the technology and AI trade. We do think that we are in a long capital investment cycle here,
 and certainly CapEx has been driving a lot of the earnings growth that we're seeing in terms
 of companies. So we see that technology communications, that's all really contributing to
 a large degree of earnings growth. However, what's happened recently in this most recent quarter,
 despite the fact that technology has contributed to nearly 60% of the earnings growth,
 we see investment gains from these companies also driving a lot of the earnings.
 You know, technology, as well as the S&P 500, we are seeing about 40% earnings growth,
 right? But if you exclude some of the investment gains from the technology companies,
 it's about 26%, which is still very, very strong. And what's positive about that is that we're
 seeing broadening exposure and contribution from the industrial sector, financials,
 and other areas of the market, and that's creating a healthier setup. So we do think that there
 is support for the equity markets here. And it's nice to say that we actually got some pull back
 in some of the momentum trade. Yeah, I mean, we've been having this conversation
 for a little while now on Morning Call, and I see it in your notes and I do want to get your
 thoughts on it, and that is the role that leverage is playing in this market when we are seeing
 higher highs, lower lows, and bigger moves more quickly. Sure, it does. I think that's one of the
 areas of risk that we see in the marketplace today, probably one of the biggest risk factors
 coming into the earnings reporting season. And actually, as we approach the end of the second quarter,
 we saw a significant increase in margin levels. By retail investors, we saw a 50% increase in margin,
 leverage, and that is something that is historically a sign of caution. But I think that some of
 that has already started to unwind a little bit in the month of July. However, we continue to see
 that leverage ETFs, which today represent maybe about 1% of total assets in the marketplace,
 but they're representing about 40% of daily trading volume.
 Okay, so that is the sign that we see as a potential risk because if there's any sort of
 disappointment in terms of earnings, or if there's concerns about higher interest rates,
 that could lead to much more substantial pullback based on that, based on the leverage.
 Okay, something to keep in mind. Karen Pie, great to have you on to kick off the hour. Appreciate it.
 We got a lot more to come here on Morning Call, including the private market risk
 around in videos, $500 billion AI financing deal, plus a democratic socialist defeat in Wisconsin,
 dealing a psychological blow to the far-left momentum heading into November. And once again,
 the polls got it wrong, really wrong. And later, space stocks pop as SpaceX gives investors a major
 market update, and as Firefly blows past estimates, you can see those shares higher. We got a one-on-one
 with CEO Jason Kim, a Firefly that is coming up straight ahead, a very busy hour. One Morning Call
 Returns. What made you confident that you could do something that hadn't been done before?
 I have no fear of failure. Trailblazing women, changing the game. One of my favorite pieces of advice.
 Think about what your boss's boss needs. Leadership can look in many, many different forms. It really
 does come down to just trusting yourself, like the short, and you just gotta think big to accomplish
 big things. Julia Borsten hosts CMBC Changemakers and Powerplayers. New episodes every Tuesday,
 wherever you get your podcasts. Welcome back to Morning Call and video is edging higher.
 Today, it's of about 1% per market, but the stock is down more than 2% this week. So far,
 after the company announced it's teaming up with Wall Street firms, quite a few of them,
 on a half a trillion dollar plan to help finance the AI build out by securitizing GPUs,
 essentially launching a new asset class. This, as the CME, is set to launch the first compute
 futures contracts in October, that's pending regulatory approval, giving investors a way to trade
 and hedge the price of AI computing capacity. Let's talk more about the role of private markets
 and what they could play in all of this. And just in general, how this speaks to this idea of a new
 asset class and how everybody will be exposed to it or levered to it and how the build out actually
 happens. Joining me now is Ali Mele founder and CIO at Monachal Partners, a private credit manager.
 He's also the former global co-head of structured finance at Goldman Sachs. And Ali, it's great
 to have you on. Welcome to you. I mean, let's, let's start right there. Your reaction to the news
 around this platform and what it means in terms of an idea of a new asset class.
 Good morning and thank you having me. Thanks for having me. It is the natural
 progression in our view of the graphics need that exists in the AI ecosystem and how it needs to
 be finance. If you look at the graphics projections across the board, not just the hyper-escalers,
 it's going to be more than $1 trillion for 2027. And if you look at the size of the investment
 grid market, which is the natural price where companies go to finance their graphics needs,
 there is not enough capacity in the public, more liquid IG market. Therefore, it is not surprising
 that essentially, graphics spenders are looking at other pockets of capital and especially they
 go to private markets. And that might mean private credit, that might mean infrastructure debt,
 that might even mean real estate debt. And you can see all of these credit adjacent markets
 that are going to be tapped to finance the graphics need for AI buildouts.
 Okay, you just said a lot. I want to dig into. But first, let me ask you a question. I was asking
 some of our guests on the show yesterday. And that is how does this speak to and how much hinges
 then on the lifecycle of a GPU, especially as just last night from CoreWeave, I think one of the
 key takeaways was this notion that the newest chips carry the highest margins, which in turn
 is going to incentivize aggressive upgrade cycles. You are absolutely right. That's the biggest
 risk here. And here the bet essentially on the role that Nvidia sees for itself is
 guaranteeing that residual value. So what Nvidia is doing is saying, okay, I sort of
 control even the release cycle. So when they talk about their 25% guarantee that they provide,
 that guarantee is supposed to take care of the chip cycle. But if you look at the depreciation
 care of H100, where they were trading two years ago, which at the peak of the market was about
 $40 to $50,000 a chip, and now they trade, or you can buy them at $8,000 to $10,000. That's
 a steep depreciation care. And that's the risk that that exists that you can have these structures
 where Nvidia itself is guaranteeing the chips residual value.
 Whatever the price is today, whatever is the life cycle, the chip can earn during it,
 its first three years of life. It's sort of no different than buying a car. You buy a new car,
 you drive it for three years, and then at the end of the three years, what price can you sell
 the car? And if you have borrowed too much against the car, at what price is the price of the car
 at the end of three years? Is that going to be more than the loan amount or not? The same mathematics
 applied to a GPU. And that is the risk that Nvidia is saying. It's equivalent of GM or Ford saying,
 well, we know the release cycle of our vehicles, so we kind of give you a guarantee, some type of
 credit support on where that residual value is going to be done the line at three or four years.
 And then that opens the gates to get some of these structures rated, because essentially it's
 more difficult right now to borrow in the IG market, so you might have people like
 Corviv or Corviv equivalent that they want to rely on and Nvidia guarantee to get their structures
 rated. Yeah, so in light of all of this, I mean, we've seen over the last call at decade,
 we've seen the private markets balloon. We've also seen exposure, including for individual
 investors, retail investors, retirees, et cetera, begin to grow here too. Can the private
 markets help support this AI infrastructure build out if it continues to grow upon itself,
 especially, by the way, as token prices continue to collapse? Well, that's both the risk and
 opportunity. The benign scenario for the private markets is investment-grade market might have
 a half a trillion dollar of capacity left in it for the hyper-scaler to issue. So the benign
 scenario is that it's just a supply and demand on the credit side, hence as the IG market gets
 saturated, you start accessing the private markets, maybe some of the retail investors that have
 exposure to the private markets will effectively indirectly be financing the AI build out.
 Okay. The more critical scenario is going to be, well, even a company like Nvidia, it was the
 only game in town. No, it's the best game in town, but still a very good game in town.
 Do they have, if you end up in a scenario where actually people come to collect under
 these guarantees? And that's a scenario where the GPU prices are collapsing. Are there
 going to be other people that will be trying to sell their GPUs at the same time? And is that
 suddenly going to create too much demand for Nvidia? And suddenly you will see a balance sheet
 that might be not levered so much. Suddenly look very levered because in those scenarios,
 you might see EBITAL declining because if the token prices are coming down, then it means that
 revenues are coming down for hyper-scalers and for some of these people that will be
 Nvidia's customers. And then it will push down, put down price increase on the chip partners.
 Okay. Allie Mellie of Montenegale Partners. Thanks for joining me.
 Thank you so much for having me. Well straight ahead, President Trump looks for new policy pledges
 to give his party a boost ahead of the critical midterm elections, including one that could impact
 your money in a very big way. But first, let's get a check on shares of H&R Block, which are surging
 on the back of fourth quarter results that beat forecast. The company giving an upbeat outlook
 for fiscal 2027, H&R Block also raising its quarterly dividend by 10%.
 Taxes paying off. Up 15% we're back after this.
 What made you confident that you could do something that hadn't been done before?
 I have no fear of failure. Trailblazing women changing the game.
 One of my favorite pieces of advice, think about what your boss's boss needs. Leadership can look
 in many, many different forms. It really does come down to just trusting yourself like
 the short and you just got to think big to accomplish big things.
 Julia Borsten hosts CNBC Changemakers and Powerplayers. New episodes every Tuesday, wherever you get your
 podcasts. Welcome back. We've got a news alert and a major upset in a highly watched primary with
 David Crowley beating Francesca Hong and Wisconsin's Democratic gubernatorial primary.
 Hong was expected to win and become a part of a wave of progressive candidates. By the way,
 according to polls, expecting to win by double digits, which is not what happened here.
 Some aligned with the Democratic Socialist of America who have recently won other high-profile
 primaries. It's a different story in Minnesota though. Progressive Lieutenant Governor Peggy
 Flanagan defeating her centrist opponent, Representative Angie Craig, to clinch cinch the
 Democratic nomination for the US Senate race there. And that's just the tip of the iceberg here.
 So for more, let's bring in Garrett Downs, CEMBC Politics and Policy reporter joining us from
 Washington. Garrett, it's good to have you on. Let's start right there with the loss by Francesca
 Hong and what it means for the Democratic Socialists and also what it means for the state and for
 this movement. We've been talking about coming into the midterm elections.
 Yeah, I mean, there's no sugarcoating at Morgan. This is a big blow for the Democratic Socialists
 of America. You know, they've secured a couple of big wins in the country recently,
 you know, with the election of Zora Mamdani in New York City as the mayor. But it looks like in
 Wisconsin, Francesca Hong was just too big of a bridge for voters in the Midwest across. You
 know, David Crowley at one point, this was a big surprise. Like you said, he had actually dropped
 his bid for this nomination at one point. But then secure the endorsement of Governor Tony Evers,
 the current incumbent there in Wisconsin. And last night, just surges across the finish line,
 Beats Hong and, you know, it just seems like some of her policies were might have been too much
 for these voters in Wisconsin. Things like state run grocery stores, higher taxes on the wealthy,
 taxpayer subsidized child care. You know, some of these DSA points were just too much for
 Wisconsin voters. All right, so in Minnesota, what do we make a plan against the defeat of
 rep Angie Craig here then? Yeah, so this is a bright spot actually for progressive Democrats.
 Big difference though here is that Peggy Flanagan was not endorsed by the Democratic Socialist
 of America. Yeah. You know, she's a much more standard Democratic candidate. But she was endorsed
 by Senator Bernie Sanders, Senator Elizabeth Warren, some of these heroes on the left of the
 Democratic Party. And, you know, she has called for some progressive things like Medicare for
 all and ending military aid in Israel because of the war in Gaza. So Morgan, you know, it's kind of a
 mixed bag for progressives here, lost for the DSA, a win for Flanagan over Craig who is much more
 of a moderate. Yeah. Okay, so in light of all of this, the fact that once again, and you could
 argue this has been happening for the better part of a decade, the polls have been getting some of
 this wrong. How to understand that and where investors in the general public should be tracking
 and monitoring some of these elections as we do go into midterms and perhaps just as importantly,
 when you do look at the policies that are being put forth right now, what all of this means for
 the economic picture as we go into a midterm election. Yeah. So I think you're going to hear a lot
 of conversation after this about just how big of a miss this was for polls. I mean, like we've said,
 Hong was up 20 points. You know, this looked like her election to win and she ends up now losing
 this morning. So that's going to be something that's talked about a lot. But I think you can look
 at the economic picture and say, you know, Democrats are probably still trending towards this more
 progressive sort of movement, you know, this Bernie Sanders, Elizabeth Warren, AOC. These people are
 still holding a lot of cashier with Flanagan's win out in Minnesota. However, I think it, you know,
 really depends on who's messaging that, you know, Hong was just unable to escape some of her past
 comments and was just a bridge too far, I think for those voters. But I think you can look at this
 and say, you know, this is the way Democrats are trending. But at least for the next two years,
 you're going to have Donald Trump in the White House, you know, that's going to sort of stop any
 huge policy shifts. But I think looking ahead to 2028 with who Democrats, you know, decided to
 put up for president, this could end up being a big debate. Are they going to go with someone
 more in the more in line with Peggy Flanagan? Or, you know, are they going to go in line with someone
 like Angie Craig or Joe Biden or, you know, one of these more moderate Democrats?
 Yeah, a lot, a lot to digest here. And of course, we had some interesting shakeups in
 Connecticut and South Carolina too. Garrett Downs, it's great to have you on. Appreciate it.
 Of course Morgan, thank you. Still on deck. What do you want us to call the most important part
 of SpaceX's future? And why it has little to do with the business of launching rockets? We're in
 call right now. I'm Morgan Brennan. Welcome back to morning call. Let's get a check on US
 stock futures, which are in the green right now with the Dow coming back off of back-to-back
 losing sessions. And a negative start to the week albeit fractional losses across all of the
 major averages. As you can see this morning, the S&P is indicated to open up 12 points. The
 Dow 33, the Nasdaq 195, the AI trade. That's part of what is propelling the Nasdaq your pre-market
 is in focus this morning. Again, on the back of core weave and super micro earnings, core weave
 posting a top and bottom line bead for its most recent quarter. Guidance also coming in strong.
 Super micro is showing issuing bullish guidance for the current quarter. We'll call it blowout
 guidance. Earnings for its most recent quarter also bead while sales miss. You can see core weave
 shares are up 17%. Super micro up eight and a half percent. If we check global markets,
 though, a mix session in Asia costs be leading regional gains up over 3.5%. A mix start to trading
 in Europe, though, as you can see on your screen with a DAX up about half a percent, but the
 French CAQ basically flat to the downside. We're watching shares of SpaceX this morning too.
 This after the company last night posted a 30-minute all-hands recording on X that CEO Elon Musk
 held with employees. Musk saying AI has become an extremely important part of SpaceX's future
 and sharing an eye-popping forecast for the rest of the year.
 So where are things headed in terms of SpaceX AI? The wild thing is that
 probably our AI revenue, not probably definitely, our AI revenue will exceed all other
 SpaceX revenue probably in September. Well, just to put that in perspective,
 SpaceX connectivity were combined $5.25 billion in Q2 in revenue. AI was almost $2.6 billion.
 10 gigawatts of AI compute online by the end of 2027. That is what they put as their target for
 Q2 earnings at report last week. Much projects that that scale could generate $300 to $500
 billion in annual revenue. He called the future fundamentally AI and robots adding that if civilization
 continues to progress, the amount of digital intelligence will probably be more than get this
 a trillion times the amount of biological intelligence. That's the reason he argued that SpaceX
 employees, the brain trust of SpaceX, needed to be integral to the training of GROC and all of the
 software and the development of the software and that that's really going to involve the whole
 of SpaceX. He also discussed the need for AI focused on humanity. I think this is incredibly
 important moving forward as all of this technology evolves that humans won't be able to control the AI.
 This is something we've talked about in the last couple days from the cyber security standpoint,
 which is why it needs to be trained on the fundamentals of humanity and the values of humanity.
 That is what he was talking about. Shares of SpaceX, up 1% this morning trading just below
 the IPO price pre-market. Also, expect those quarterly updates after earnings every couple
 of months here. Sticking with space and watching shares of Firefly Aerospace, jumping on the back
 of Q2 results, posting the first quarterly revenue above $100 million dollars. It was a record.
 Management also reiterating its full-year revenue guidance. Separately, Firefly is extending
 its multi-launch agreement with Lockheed Martin through 2031. So if you're more, let's bring in Jason
 Kim, CEO of Firefly Aerospace. Jason, it's great to have you back on the show. Let's start right
 there. The fact that you posted a record quarter and the space space seems to be seeing momentum,
 including at Firefly. Yeah, we're really excited, Morgan. Thanks for having me back on.
 Record year over year 659% growth in quarterly revenue,
 breaking $100 million dollars for the first time in our ninth year as a company. It's really a
 testament to all the execution and all the wins that we're getting on things like the moon base.
 We won our fifth and sixth moon contract. We're really excited about that being a leader in
 lunar missions. We won a $144 million dollar contract to accelerate a near-build-to-print
 blue ghost mission to the moon. And then we also won a flagship program from the moon
 base with Jet Propulsion Laboratory. Move-all program to take JPL's drones to the South Pole
 of the moon. So that's really exciting. And then as you heard recently on the AI software side,
 we won a $94 million dollar ground-based radar digitization program. And what we did was we
 lifted and shifted our forged playbook, which forges a program of record that's operational.
 It's seen that it's battle tested in operations, such as the Iran conflict.
 It's got superior ratings for all the generals and the Pentagon.
 We took that, lifted and shifted it, applied it to the back end of the ground-based radar digitization
 program. Yeah, certainly a lot. You're seeing very busy. And I think a lot of folks would be very
 surprised to realize how outdated ground infrastructure is when it comes to some of the capabilities
 and what needs to go into that moving forward. I want to talk to you about launch. It's not something
 you and I talk about quite as much in the past. And it was something that really stood out
 in your earnings and your earnings call. And that is what are you seeing for your alpha rocket
 and for launch demand, especially as we see some of the bigger players in the market like SpaceX
 now perhaps focusing more of their launch activity in the future on their own internal operations.
 Well, there's so much demand for launch. It's the most constrained that I've ever seen it,
 in which both well for alpha and our eclipse. We're seeing a lot of strong demand for existing
 customers like Lockheed Martin. As well as new customers, we saw that trend at space symposium
 really just get bolstered up. And then we were at Farmbro and UK and we just got to meet with
 existing new customers. So we signed a second hypersonic test task order recently. And that just
 further proves that there's significant demand for our one ton alpha rocket. That's for orbital
 launch to Leo, but for some orbital we can go two tons. So that's really conducive to a lot of
 the hypersonic missile testing that there's a rich backlog that needs to get burned down.
 So there's a lot of demand. That's not the problem. We are producing at record pace right now.
 If you look at our factory in Austin, Texas, you'll see that the carbon deposit tanks,
 we are at record production rates with those that are passing first time quality.
 We've got flight eight in integration and final integration in tests. So we'll do acceptance
 testing, ship it to Vanderburg, do the standard fire testing, integrate the payload,
 and then launch that. Get post-flight data and flow that into flight nine, which is entering
 the integration and test campaign. All the airframes for flight ten are completed,
 flight elevens in build. And then our machine shop is at record production pace as well.
 Okay. We've got more than four alpha worth of re-rechambers in build right now.
 Okay. That seems to be the takeaway coming out of this earnings season. We're hearing it from you
 as well. Jason Kim of Firefly. The demand is there. Now the production needs to match it.
 The delivery needs to happen. It's great to have you on the show again. Appreciate it.
 Thanks for having me. All right. Well, as we head to break, let's get a check on Kava.
 Another big mover to the upside this morning. It's up almost 12% free market.
 Sharers are jumping the back to Qt results. The fast casual change in climbing customer traffic
 boosted its profit during the quarter. Same store sales were strong.
 And we're going to hear from Kava CEO. I believe a little bit later on SquatBox. Morning,
 call you right back. Let's get to Washington and President Trump,
 reportedly weighing a new policy push ahead of the midterm elections.
 Among the policies being considered would be calling on Congress to cut capital gains taxes
 and create an exemption for certain home sales worth two million dollars or less.
 We'll straight ahead. The morning call crew is going to tee up the trading day ahead.
 And one member says he's buying into one name that is helping to drive the AI trade this morning.
 Can you guess which one? We're back after this.
 Welcome back. You're just time for your call sheet where we look at the topics driving
 the trading day ahead. Crew members today, Jeff Kilberg of KKM Financial. He's also a CMBC
 contributor. Marco Pappitch of BCAA Research and Bill Lee of Global Economic Advisors.
 Great to have you all here. Jeff, I'm actually going to kick this one off with you.
 When I look at the core weave results yesterday, when I think about the Nvidia,
 you know, half a trillion dollar financing deal, CME getting ready to stand up compute contracts.
 And also SpaceX saying that AI revenues about to eclipse everything else of the business as soon
 as next month. Are we entering a new stage of this AI infrastructure build out this AI era in general?
 Can you buy me right more again? And it feels like the red hat chili peppers is blaring and can't stop
 this morning as the AI trade seems to be back. And it's interesting core weave really illuminated
 the fact that it's up 18.5% right now after earnings morning above 107. So I think it illuminated
 the fact that all this catbacks, all this spend is actually translating into profitability.
 Look at core weave at 74% gross margin profit. It's amazing to see how much money they can produce
 inside of their margins, but they've been saddled for five consecutive quarters. Since they've had an IPO,
 they've had a negative reaction to every earnings report. This is the first positive one. I'm
 embracing the fact that actually bought calls yesterday in core weave. So it's great to see this
 market move it higher specifically for core weave because it can help others better understand
 that cap acts is finally translating into revenue. Yeah, and we're going to get nebius results
 this morning before the bell, too. So that'll be another one to watch. Just go after the bell tonight.
 Also, Sir Rebius tonight. Marco, I want to get your thoughts on this because obviously the
 spending train continues here when we talk about AI. There's obviously a geopolitical element to it.
 This idea of an AI arms race and yet token prices are collapsing. Chinese models are getting
 adopted by Western companies more quickly here because it's pennies on the dollar. What could go wrong?
 Well, I think what can go wrong is that at some point data center investment
 as with literally every capex cycle ever in a technological revolution, data center investments
 just are too high. We overbuilt. And we as humans have literally done this every time. And this
 is what the bears are focusing on. They're focusing on the history and the reality that we've never
 escaped this human need to at some point just overbuilt the canals, overbuilt the fiber optic cables
 and so on. But the reality is that the earnings results are showing that's not the case.
 And in fact, I believe what's going on is a price war amongst the model providers. I mean,
 that's where the open source models are coming in. Sure, right now most of them are Chinese,
 but not all of them are Chinese. And there's nothing preventing the West from developing those.
 And as prices of tokens go down, guess what happens? More and more corporates can actually afford to
 use AI models, which means there's more demand for those data centers. And so the capex is justified.
 And so I think the collapse into open prices is prolonging the AI capex boom, which is powering
 the U.S. economy and really the global economy. So I think we're not there yet. We're not at the
 bearish moment. Okay, you raised a good point too because we did see meta open source. It's new
 models this week. Bill, I see you're nodding your head as we have this conversation. Want to get your
 thoughts? I want to be the person that raised that awful word leverage where we've been there before
 when we started to see GM providing financing for cars back when and now we're seeing and media
 providing financing for compute. And I really want to warn everyone that the private credit market
 is really getting its hands really quite for in terms of providing credit for the non-financial
 corporate world and an industry where banks themselves are being hooked in indirectly
 through cap call loans and credit lines that are feeding some of the liquidity of this of these
 deals. We have to watch out for the world when rates start to go up, will liquidity rise up,
 and we start to have a crunch. We can say that these numbers are very small right now,
 but so was the mortgage credit crisis and so was LTCM back when they exploded.
 So I would say that we're entering a very okay world where a lot of these private financing
 mechanisms are not well understood certainly not transparent and the regulators I think
 are going to start to worry when we start to see so much private credit involvement in the
 financing of very new instruments. Interesting Jeff what do you think especially as we do see
 a 30 year Treasury yields touching a high we haven't seen since 2007.
 Okay I'll put that question to you Marco. Well I agree I mean there's certainly
 signs of circular financing there's signs that you know a lot of the leverage is obviously
 supporting this technological revolution but earnings are keeping up. So at some point when
 the earnings surprises start declining when the second derivative of the CICAPX turns negative
 there's going to you know the music is going to stop. The question for investors is whether
 that's 24 months from now or six months from now earnings results that Jeff talked about
 suggests it's not six months from now. You know the data centers have a return on investment they
 have a business case and as long as that's the case I think that you can push it off some of the
 concerns the bills raising into the future. It's very difficult for professional investors to you
 know based their next 12 month allocation of assets on a two or three or risk and so I think that
 that means that investors are going to continue to pile into various plays but I do think that the
 case for at least frontier models is starting to be attacked right now. So if you invested in some
 of the frontier model plays and the open source is coming down the pipeline like that is where the
 danger might be imminent not not in the data center fixing shovels and so on. Okay I would also just
 note I don't know that people fully understand or appreciate much of it hasn't been disclosed
 publicly how much AI is playing a role when we talk about geopolitics on the battlefield when it
 comes to the Middle East or even some of what you're seeing with Russia Ukraine right now too
 unfortunately we could have a whole other conversation about that we're running out of time
 so Bill we take all of this together and what does it mean in terms of the trajectory of inflation
 as we look to CPI today PPI tomorrow and what the Fed does moving forward. It would be a very
 it would be a very serious mistake for the Fed to raise rates right now that the labor market
 is always showing that job creation is becoming a really difficult process inflation itself is
 supply side induced we don't see we see no sign of a wage price spiral which is what the Fed
 traditionally gets worked up about and starts the Titan policy supply side inflation should be left
 alone and ignored until it affects expectations and five year break evens right now have come down
 to almost two and a quarter percent and this shows no signs of any kind of problem in that for
 the French markets. Okay we got to leave the conversation there Jeff I'm sorry we get back to you
 we had some technical difficulties but we will pick this back up again soon thank you to our call
 crew you guys rock what made you confident that you could do something that hadn't been done before
 I have no fear of failure trailblazing women changing the game one of my favorite pieces of advice
 think about what your boss's boss needs leadership can look in many many different forms
 it really does come down to just trusting yourself like the short and you just got to think big
 to accomplish big things julie abhorston hosts CNBC change makers and power players new episodes
 every Tuesday wherever you get your podcasts