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Why Oracle's earnings are a key moment for AI stocks · The Financial Exchange Show

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  Speaker 1: and Paul lane Man.
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  Speaker 2: I thought yesterday was a busy show, but we are
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  Speaker 2: going to be back at it today because the news
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  Speaker 2: keeps rolling in. We've obviously got the continued discussion over Netflix,
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  Speaker 2: Paramount and WarnerMedia. If you missed yesterday's program. It looks
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  Speaker 2: like we're heading for a hostile takeover, which is always entertaining.
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  Speaker 2: At least it'll be put to shareholders this hostile takeover,
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  Speaker 2: but that will be just the gift that keeps on
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  Speaker 2: giving for the next few months.
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  Speaker 3: Would be my guest machine.
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  Speaker 2: We did get a job's report this morning. The Job
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  Speaker 2: Opening's labor Turnover survey was released at.
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  Speaker 4: Ten am, six minutes ago.
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  Speaker 2: Sounds right, But the bigger breaking news was yesterday afternoon
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  Speaker 2: when the White House announced that they are lifting restrictions
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  Speaker 2: on Nvidia's ability to sell the latest, pardon me, and
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  Speaker 2: greatest semiconductors to directly to China. Latest and greatest, yeah,
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  Speaker 2: I suppose, but higher end than what's available.
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  Speaker 3: Now, higher and than what's available now.
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  Speaker 2: So I've been thinking through all of this and trying
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  Speaker 2: to contextualize it and you know, put put together my
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  Speaker 2: own thoughts on exactly what's going on here, why they're
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  Speaker 2: going forward with this and if it marks a big
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  Speaker 2: sea change. First things first, I think you know, whether
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  Speaker 2: this is directly related or not.
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  Speaker 4: I found this to be interesting.
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  Speaker 2: There's a company in Texas called how Global, its owner
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  Speaker 2: Alan Hausu, plead guilty in October of this year to
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  Speaker 2: smuggling high end in video GPUs the h one hundreds
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  Speaker 2: and two hundreds to China as part of a major
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  Speaker 2: smuggling ring that was busted by US authorities for legal
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  Speaker 2: exploiting one hundred and sixty million dollars worth of this
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  Speaker 2: advanced AI tech that could not previously enter China. So
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  Speaker 2: we have this guy pleading guilty. It was just unsealed
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  Speaker 2: yesterday that this had happened. This is also a very
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  Speaker 2: significant turn from the Biden administration. So yeah, from the
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  Speaker 2: Biden administration, the you know, the overall strategy, and granted
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  Speaker 2: things have changed since the Biden administration. Not saying this
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  Speaker 2: is a good thing or a bad thing, but the
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  Speaker 2: Biden administration when it came to China, when it came
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  Speaker 2: to this technology, was pushing for basically global bands. And
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  Speaker 2: it wasn't just on China, right, it was other countries
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  Speaker 2: where we weren't certain about a lot of Middle Eastern countries,
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  Speaker 2: a lot of countries that were not close allies. We said, yeah,
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  Speaker 2: we're not. You're not getting these chips either. So there
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  Speaker 2: was a much bigger ban the one with you know,
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  Speaker 2: Middle Eastern countries and other nations. Those those walls have
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  Speaker 2: slowly come down under the Trump administration and this is
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  Speaker 2: a furthering of that strategy here. The other relevant point
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  Speaker 2: that I want to make about this is just is
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  Speaker 2: it two weeks ago now, maybe three you had this
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  Speaker 2: new Google Gemini AI tool come out and like, cool,
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  Speaker 2: it's slightly better than chat GPT. From what I understand,
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  Speaker 2: that's not the relevant piece. The relevant pieces that Google
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  Speaker 2: apparently trained this thing on semiconductors that they developed in house.
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  Speaker 2: That is the claim from Google. I don't know why
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  Speaker 2: they would lie about it. It would seem that would be
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  Speaker 2: pretty misleading. I think that's been pretty much proven out.
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  Speaker 2: And so when you take all of these things in
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  Speaker 2: context together, you look at the Trump administration decision and
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  Speaker 2: you say, okay.
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  Speaker 4: Google was able to develop this stuff.
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  Speaker 2: Seemingly pretty quickly. How far behind is China from doing this?
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  Speaker 4: Right?
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  Speaker 2: I mean, it's not like Google was working on this
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  Speaker 2: in twenty nineteen. Basically two came around and they saw
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  Speaker 2: how much progress that chat GPT had made and said, oh,
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  Speaker 2: they might have been working on semiconductor development. I'm sure
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  Speaker 2: they were working on AI, but they did not have
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  Speaker 2: this lightning focus, this laser focus on the generative AI,
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  Speaker 2: the large language model. And so the fact that probably
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  Speaker 2: over the course of three years they were able to
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  Speaker 2: put this focus on there develop a semiconductor that can
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  Speaker 2: train this thing, I think is relevant to this conversation.
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  Speaker 2: The conviction of this company and this individual in Texas
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  Speaker 2: who was funneling these chips to China illegally and you know,
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  Speaker 2: allowing them to get access to them, I think is
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  Speaker 2: another acknowledgment that hey, these bands might sound.
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  Speaker 4: Good to our voters, but might not actually be doing anything.
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  Speaker 2: And then furthermore, we have this pressure from Nvidia saying, hey,
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  Speaker 2: either let us sell this stuff to China or they're
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  Speaker 2: going to develop their own homegrown industry. I start to
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  Speaker 2: understand the reasoning why the Trump administration has gone this direction.
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  Speaker 3: I'm not sure that it ties together all that neatly,
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  Speaker 3: in just the sense that it's worth looking at just
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  Speaker 3: how sophistic these chips are relative to the ones that
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  Speaker 3: are being used to train the large language models that
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  Speaker 3: we're looking at today, which are majority the Blackwell chips,
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  Speaker 3: like the most recent advancement that we've seen, and to
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  Speaker 3: step back for a second, probably explain, Nvidia is the
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  Speaker 3: designer of the most sophisticated chips that help power for
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  Speaker 3: any listeners out there that I've used chat TPT, that
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  Speaker 3: I've used Gemini, those models are trained on chips that
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  Speaker 3: were either designed by Nvidia or, in the case of Gemini,
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  Speaker 3: the TPUs that Mike was referenting before, which are Google's
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  Speaker 3: in house chips. Those are two and a half times
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  Speaker 3: four times better performers and more sophisticated than these h
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  Speaker 3: two hundreds that we're speaking of here that China has
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  Speaker 3: not had access to but now supposedly is going to
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  Speaker 3: have access to sooner. So from the schools of thought,
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  Speaker 3: initially there was the Biden administration idea of we should
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  Speaker 3: just not have any of these sophisticated chips going to
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  Speaker 3: China at all, and that's why there are several behind
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  Speaker 3: when you look at the most advanced cutting Jai chips
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  Speaker 3: out there. There's also been an argument made by Jensen
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  Speaker 3: Wang of Nvidia that, No, it's better for them to
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  Speaker 3: be in our back pocket in a sense and have
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  Speaker 3: China more reliant on our chips.
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  Speaker 4: Have them be a buyer exactly, have.
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  Speaker 3: Them be a buyer so that they are just committed,
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  Speaker 3: committed to using our chips. That way we control their
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  Speaker 3: access to them. And ultimately you're right from a policy standpoint,
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  Speaker 3: this is a clear shift by opening the door to
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  Speaker 3: that a little bit more. But it is worth noting
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  Speaker 3: still a lesser version of those chips and prefer is
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  Speaker 3: not a Google tie in.
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  Speaker 4: Here is my question. Can you name one industry, any
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  Speaker 4: one technology or industry that has ever made the argument, hey,
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  Speaker 4: we need to go to China because A it's a
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  Speaker 4: huge market and B we don't want them to develop
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  Speaker 4: this stuff on their own, and has successfully gone to
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  Speaker 4: China without having their IP intellectual property ripped off and
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  Speaker 4: then a du you know, a duplicate industry homegrown in China.
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  Speaker 4: The only one that I can think of is Boeing.
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  Speaker 4: The only company in the world that I can think
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  Speaker 4: of in the history of American or you know, European
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  Speaker 4: companies who have ever said, hey, we need to go
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  Speaker 4: after the Chinese market a because it's a huge market
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  Speaker 4: and b because otherwise they're going to go do it
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  Speaker 4: themselves and has actually been successful. And Tesla did it,
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  Speaker 4: Starbucks did it again, not that I think Starbucks has
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  Speaker 4: some great intellectual property, but even there, they went to
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  Speaker 4: China and now Luck in Coffee is eating their lunch
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  Speaker 4: because they realized that this was the case. Solar panels
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  Speaker 4: cars Like, I'm just trying to think of what track
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  Speaker 4: record here we have of being successful in this, and
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  Speaker 4: I cannot think of a single industry or company other
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  Speaker 4: than planes.
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  Speaker 3: And is that maybe because and I don't know the
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  Speaker 3: history on this, that China wasn't ask committed to commit
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  Speaker 3: a lot of capital to development. It's not a very
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  Speaker 3: profitable business to run. The manufacturers make money on the
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  Speaker 3: airplane engines and the parts, but the airlines itself. Just
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  Speaker 3: maybe there wasn't as much emphasis on China.
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  Speaker 2: Because if I'm China, I'm probably thinking to myself, Okay, great,
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  Speaker 2: I can get my hands on these Nvidio chips now.
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  Speaker 2: But it is an absolute arms race to be able
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  Speaker 2: to do this my own because the next president of
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  Speaker 2: the United States can shut off my access to these
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  Speaker 2: Age two hundreds.
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  Speaker 3: But also, Mikey, we have to make the point here,
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  Speaker 3: I don't think China wants to have access to them.
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  Speaker 3: From a policy standpoint, there's gonna be significant. That's why
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  Speaker 3: I would I know it's the lead of the show,
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  Speaker 3: but I would argue it's almost much to do about nothing,
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  Speaker 3: because Okay, you're permitting these chips to be sold to China.
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  Speaker 3: They don't want them, or they're gonna take a very
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  Speaker 3: hard stance on allowing them to the country. Why don't
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  Speaker 3: they want them because they want to domestically develop a
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  Speaker 3: solution themselves.
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  Speaker 4: Yep. So they're also worried about spying national security.
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  Speaker 3: Well, prior to the.
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  Speaker 2: United States, i'd put some tools to spy on china
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  Speaker 2: today's things, so I'm guessing we do.
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  Speaker 3: They're leaning on that to further their you know, messaging
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  Speaker 3: that hey, this is why we should not be so
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  Speaker 3: reliant on these.
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  Speaker 2: But I would agree, you create a shortage and hopefully
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  Speaker 2: your economy will innovate a solution to that shortage. And
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  Speaker 2: that's what I think they're hoping for here is even
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  Speaker 2: if we can buy these, we're going to set pretty
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  Speaker 2: strict limits on how many companies are allowed to because
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  Speaker 2: we want a homegrown.
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  Speaker 3: Che Yes, So you look at the domestic provider in Nvidia,
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  Speaker 3: Do I think they get a huge boost from this
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  Speaker 3: from a revenue perspective? No, not really enough to see
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  Speaker 3: what the stock is doing today, I don't think it
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  Speaker 3: was moving tremendously amount in the pre market. And yeah,
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  Speaker 3: they're they're flat, They're down two thirds of a percent,
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  Speaker 3: and then China's not going to allow for many people
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  Speaker 3: to buy them. So where do I think the more
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  Speaker 3: interesting question is where do you stay on the side
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  Speaker 3: of just restrict any technology from them at all? Or
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  Speaker 3: is it hey, we'd rather them in their back pocket.
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  Speaker 3: That's the hard question.
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  Speaker 4: And is Blackwell next?
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  Speaker 3: Right?
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  Speaker 2: If I'm Jensen Wong, that's you know, okay, yeah, put
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  Speaker 2: it on my calendar for January tenth. I'm going back
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  Speaker 2: to the White House and trying to convince them that
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  Speaker 2: we need to sell the black Well Well.
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  Speaker 3: What's interesting is a group of US senators has introduced
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  Speaker 3: legislation that would delay this by thirty months. For these
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  Speaker 3: two hundreds, that's gonna be light years behind. They're already
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  Speaker 3: talking about the Rubin after the black Bell. So if
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  Speaker 3: you delayed thirty months, this is like ye total non
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  Speaker 3: good point.
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  Speaker 4: Uh.
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  Speaker 2: The the final interesting points that I'll bring up on this.
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  Speaker 2: In Nvidia earlier this year, via kind of a handshake
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  Speaker 2: agreement with the White House, agreed to voluntarily pay the
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  Speaker 2: US Treasury a quarter of all sales to China. Remember
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  Speaker 2: that well fifteen percent of revenuee percent of revenues on
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  Speaker 2: the H twenty, which is a water down version of
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  Speaker 2: these eight two hundreds. So presumably there's you know, going
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  Speaker 2: to be some higher volume of these sales to China
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  Speaker 2: and they are willing to pay the US Treasury. There
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  Speaker 2: is absolutely no uncertainty that the White House has no
• 11:51
  Speaker 2: authority to tax exports, like it's one thing for you know,
• 11:57
  Speaker 2: for for tariffs to be levied by the White House.
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  Speaker 2: There are some legal press since they're there is zero
• 12:01
  Speaker 2: legal precedent to tax exports none whatsoever, and constitutionally it's
• 12:07
  Speaker 2: a real question. But it was pointed out to me
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  Speaker 2: by somebody that yeah, sounds great, but who's going to
• 12:12
  Speaker 2: sue here?
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  Speaker 4: Right?
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  Speaker 2: It's it's not going to be in Vidia. They agree
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  Speaker 2: to the deal. What standing do they have to sue?
• 12:20
  Speaker 2: You're taxing some other companies, So I'm going to sue
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  Speaker 2: the government? I don't think so?
• 12:23
  Speaker 3: Is that how they're they're administering through a tax. It's
• 12:26
  Speaker 3: not just like a revenue.
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  Speaker 4: What's the difference.
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  Speaker 2: Yeah, so two things can be true to me. One,
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  Speaker 2: it looks like this, you know, handshake agreement, were it
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  Speaker 2: to be enforced by the White House, would be very illegal.
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  Speaker 2: And Nvidia, if they brought to court would absolutely be
• 12:44
  Speaker 2: able to say we don't have to pay this, But
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  Speaker 2: at the same time, probably has no incentive to bring
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  Speaker 2: it to court because the only way they're able to
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  Speaker 2: sell these things.
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  Speaker 3: Or zero.
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  Speaker 4: Yeah, let's take a quick break.
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  Speaker 2: A lot more AI stories to cover here, and in
• 13:01
  Speaker 2: particular a big earnings report this week that will be upcoming.
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  Speaker 4: We'll be talking about that next. On The Financial Exchange, business.
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  Speaker 3: Thank you veterans for all you've.
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  Speaker 2: Done, so paul A few I'm gonna say a month
• 13:53
  Speaker 2: ago there was a bit of a turn in the
• 13:56
  Speaker 2: narrative around AI. And again it hasn't really continued. There's
• 14:00
  Speaker 2: been drips of it in the media, but I would
• 14:03
  Speaker 2: say a month ago the only thing that we were
• 14:05
  Speaker 2: covering on this show was investor concerns about AI being
• 14:09
  Speaker 2: overbought and companies getting you know, circular financing deals and
• 14:15
  Speaker 2: you know, starting to look a.
• 14:16
  Speaker 4: Lot like the dot com bubble.
• 14:18
  Speaker 2: I will also acknowledge for a minute that most of
• 14:20
  Speaker 2: the conversations about that have gone away over the course
• 14:23
  Speaker 2: of the last couple of weeks. I don't hear that
• 14:26
  Speaker 2: mentioned nearly as much, but Barons here points out that
• 14:30
  Speaker 2: we'll have a pretty good test of that narrative tomorrow
• 14:33
  Speaker 2: when Oracle goes and reports earnings. And I think they're
• 14:37
  Speaker 2: right in so far of one thing, which is this
• 14:39
  Speaker 2: is one of those companies that is on the periphery
• 14:44
  Speaker 2: of the of the AI trade, right they have these
• 14:47
  Speaker 2: deals with AI companies.
• 14:49
  Speaker 4: They are not one themselves.
• 14:50
  Speaker 2: They are a computing company that briefly benefited quite a
• 14:55
  Speaker 2: bit from some of these announced deals, but over the
• 14:59
  Speaker 2: course last month they've lost eight and a half percent
• 15:01
  Speaker 2: of their value. I think are even more over the peak.
• 15:04
  Speaker 2: I mean, talk to me about where this has gone
• 15:07
  Speaker 2: over the course of the last few months, because it
• 15:09
  Speaker 2: has been pretty wild.
• 15:11
  Speaker 3: Incredible ride. So to set the context, you made the
• 15:14
  Speaker 3: good a stew point that it did seem like over
• 15:17
  Speaker 3: the course of the last call it month and a
• 15:19
  Speaker 3: half to two months, there were more and more stories
• 15:22
  Speaker 3: and concerns being raised about the amount of infrastructure spend
• 15:27
  Speaker 3: within artificial intelligence and are there is there going to
• 15:29
  Speaker 3: be revenue to justify that. A month preceding that, you
• 15:33
  Speaker 3: had probably the peak of sort of the optimism behind
• 15:38
  Speaker 3: some of the artificial intelligence deals, where Oracle announced a
• 15:43
  Speaker 3: three hundred billion dollar contract with open Ai, the makers
• 15:47
  Speaker 3: of chat TPT that would begin in twenty twenty seven,
• 15:50
  Speaker 3: and their stock that day soared about thirty percent just
• 15:54
  Speaker 3: within one day of announcing that news. The stock was
• 15:57
  Speaker 3: at two hundred and thirty eight dollars to share on
• 15:59
  Speaker 3: the close September eighth, and it closed on September tenth
• 16:03
  Speaker 3: at three hundred twenty eight dollars a year today or we.
• 16:06
  Speaker 2: Just paused there real quick. So the deal that was
• 16:09
  Speaker 2: announced was how much money for Oracle?
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  Speaker 3: Three hundred billion dollars of future revenue commitments for a
• 16:14
  Speaker 3: five year contract with open Ai beginning in twenty twenty seven.
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  Speaker 4: Got it?
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  Speaker 2: And just to be clear, open Ai, the privately held
• 16:21
  Speaker 2: company that created Chat GPT, according to most estimates that
• 16:25
  Speaker 2: I'm seeing, is expected to generate revenue in twenty twenty
• 16:28
  Speaker 2: five less the numbers.
• 16:30
  Speaker 3: Eighty thirteen, but it should close it like.
• 16:31
  Speaker 2: Twenty Okay, yeah, so twelve to thirteen to maybe twenty billion.
• 16:35
  Speaker 2: So you are talking about commitments that they are making
• 16:38
  Speaker 2: to one single company that are somewhere in the range
• 16:42
  Speaker 2: of fifteen to twenty x their annualized revenue.
• 16:44
  Speaker 4: Got it corep going.
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  Speaker 3: So from there you see Oracle stock today at two
• 16:49
  Speaker 3: hundred twenty dollars a share, so lower than it was
• 16:52
  Speaker 3: prior to that announcement in September. What is what has
• 16:56
  Speaker 3: happened over that span of time? It's exactly what Mike
• 16:59
  Speaker 3: mentioned in tern terms of the revenue from Chat, TBT
• 17:03
  Speaker 3: and open ai. Is Oracle is what does it entail?
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  Speaker 3: That three hundred billion dollar deal well, Oracle is going
• 17:09
  Speaker 3: to do the heavy legwork to build out all the
• 17:11
  Speaker 3: infrastructure that open ai is going to lease the computing
• 17:15
  Speaker 3: capacity for them. So we talk a lot about in
• 17:17
  Speaker 3: the show's data center construction. Oracle is going to be
• 17:21
  Speaker 3: behind getting the shovels into the ground, getting the chips
• 17:24
  Speaker 3: into the data centers, to build out the infrastructure that
• 17:26
  Speaker 3: open ai will lease from them. Well, it's a little
• 17:29
  Speaker 3: concerning when you have a three hundred billion dollar commitment
• 17:32
  Speaker 3: for a contract for a company that's doing twenty billion
• 17:34
  Speaker 3: dollars in revenue that's eventually going to lease your computing spaces.
• 17:38
  Speaker 3: Are they going to have the money to pay for it?
• 17:40
  Speaker 3: Are they going to have the money to be able
• 17:41
  Speaker 3: to come up with that commitment? And these data center
• 17:45
  Speaker 3: commitments are significant. You're talking about building out four and
• 17:49
  Speaker 3: a half gigawatts of computing capacity. What does that mean.
• 17:52
  Speaker 3: That's like the state of Virginia or Massachusetts in terms
• 17:55
  Speaker 3: of the residence, households, electrical consumption building out these data centers.
• 18:00
  Speaker 3: It's a huge commitment. So we bring this forward to today. Tomorrow,
• 18:03
  Speaker 3: they're going to come out with their earnings. These deals,
• 18:06
  Speaker 3: some of them are for the future. We just talked
• 18:08
  Speaker 3: about before. But the question is are they executing, are
• 18:10
  Speaker 3: they converting on them? Are they realizing the revenue and
• 18:13
  Speaker 3: getting infrastructure growth on their cloud development from other users.
• 18:17
  Speaker 3: That's what we have to look at tomorrow. I don't know.
• 18:20
  Speaker 4: Really for that.
• 18:21
  Speaker 3: I was a little surprised Mike with this piece, like
• 18:23
  Speaker 3: how much are we really going to get tomorrow?
• 18:25
  Speaker 2: So, for instance, the deal with open Ai, it's a
• 18:27
  Speaker 2: five year contract beginning in twenty twenty seven. Right now,
• 18:30
  Speaker 2: there's a boatload of worth in Oracle needs to do
• 18:33
  Speaker 2: ahead of time in order to start getting that revenue
• 18:35
  Speaker 2: in twenty twenty seven. Don't get me wrong, But what
• 18:37
  Speaker 2: are they going to say other than if you can
• 18:39
  Speaker 2: going ahead and it's something great.
• 18:42
  Speaker 4: If you don't.
• 18:43
  Speaker 2: If they say, oh we hit a few stumbling blocks
• 18:45
  Speaker 2: and we're not sure we're going to be able to deliver,
• 18:47
  Speaker 2: then you know, all bets are off and this if the.
• 18:49
  Speaker 3: Infrastructure stuff gets delayed, that would really hurt them big time.
• 18:52
  Speaker 3: The benefit they would receive is, hey, we've got other
• 18:54
  Speaker 3: people who are interested, We're growing.
• 18:56
  Speaker 4: Yeah.
• 18:56
  Speaker 2: Commit if they disclose new big customers, if they come
• 18:59
  Speaker 2: out and say, you know, also Xyz company has replicated
• 19:03
  Speaker 2: the open aideal and we are looking to be in a.
• 19:05
  Speaker 4: Good spot, then that's a different story.
• 19:08
  Speaker 2: But if we get more of this, Oh yeah, we're
• 19:10
  Speaker 2: going to be providing computing power to this company, and
• 19:13
  Speaker 2: in exchange, they're going to be giving us semiconductors that
• 19:16
  Speaker 2: we're going to buy from that same company. Uh yeah,
• 19:21
  Speaker 2: we'll see how the market reacts to that. One quick break.
• 19:23
  Speaker 2: Wall Street watches next and then we're talking jolts.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:54
  Speaker 1: Street watch a complete look at what's moving markets so
• 19:57
  Speaker 1: far today right here on the Financial ex Change Radio Network.
• 20:02
  Speaker 5: All Right, stocks are a little change as investors await
• 20:05
  Speaker 5: Wednesday's FED decision. The Dow Jones is up two tenths
• 20:08
  Speaker 5: of a percent, The S and P five hundred is
• 20:11
  Speaker 5: up point zero nine percent. The Nasdaq on the Onion
• 20:14
  Speaker 5: is down point zero six percent. Right now, President Donald
• 20:18
  Speaker 5: Trump said the US will allow in Vidia chip to
• 20:21
  Speaker 5: ship its H two hundred intelligence jeez, it's eight h
• 20:25
  Speaker 5: two hundred AI chips to China and elsewhere. The US
• 20:29
  Speaker 5: will get a twenty five percent cut for the sales
• 20:32
  Speaker 5: which are only allowed for approved customers, and Vida is
• 20:35
  Speaker 5: currently down just over half a percent. CVS shares are
• 20:39
  Speaker 5: up over three and a half percent after the company
• 20:41
  Speaker 5: provided twenty twenty six profit guidance that came above Wall
• 20:45
  Speaker 5: Street estimates and this year's projected earnings, marking a sign
• 20:49
  Speaker 5: of steady progress in its turnaround plan. Home Depot shares
• 20:52
  Speaker 5: are up just over two tenths of a percent after
• 20:56
  Speaker 5: the home improvement giant issued weaker than expected earnings growth
• 20:59
  Speaker 5: goy ID for twenty twenty six. AutoZone shares are down
• 21:04
  Speaker 5: four percent after the automative parts retailer reported worse and
• 21:07
  Speaker 5: expected results for its fiscal first quarter. AutoZone posted earnings
• 21:12
  Speaker 5: of thirty one dollars and four cents per share on
• 21:14
  Speaker 5: revenue of four point sixty three billion dollars, and a
• 21:17
  Speaker 5: list polled expected a profit of thirty two dollars and
• 21:19
  Speaker 5: fifty one cents per share on revenue of four point
• 21:22
  Speaker 5: six four billion dollars. And finally, drone maker aero Vironment
• 21:27
  Speaker 5: is up one point three percent after it was awarded
• 21:30
  Speaker 5: a eight hundred and seventy four million dollar contract from
• 21:33
  Speaker 5: the Army for Unmanned Aerial Systems and counter UAS Systems.
• 21:39
  Speaker 5: I am Ben Kitchen and that was Wall Street watch.
• 21:42
  Speaker 4: Man Ben from the sounds that you need to get
• 21:43
  Speaker 4: in the zone. That AutoZone joke. You don't get a
• 21:49
  Speaker 4: lot of those, dyeah.
• 21:50
  Speaker 3: I'd say ouch, but I did really appreciate it.
• 21:53
  Speaker 2: We received a report this morning at ten a m.
• 21:55
  Speaker 2: Paul on the state of the labor market back in October.
• 21:58
  Speaker 2: So I'm not gonna call it completely relevant, but a
• 22:01
  Speaker 2: little bit irrelevant.
• 22:02
  Speaker 4: At this stage.
• 22:03
  Speaker 2: But this follows on the What was the Job's report
• 22:06
  Speaker 2: that we did get was that the September jobs report,
• 22:09
  Speaker 2: So this is data collected for October, a little bit
• 22:11
  Speaker 2: more current and to me kind of reconfirms a few
• 22:16
  Speaker 2: of the things that we saw there one in September.
• 22:18
  Speaker 2: I'll acknowledge that the labor market did we both saw
• 22:23
  Speaker 2: an increase in the unemployment rate, but also an increase
• 22:25
  Speaker 2: in the number of hirings that took place, And I
• 22:28
  Speaker 2: think this report kind of coincides with that. Where in
• 22:32
  Speaker 2: October you did see a slight increase in the number
• 22:36
  Speaker 2: of job openings. It was pretty much unchanged, but it
• 22:38
  Speaker 2: was a very small increase in October to seven point
• 22:40
  Speaker 2: seven million. Job openings and the discharges, quits, layoffs, et cetera.
• 22:46
  Speaker 2: Were pretty much flat for the month of October as well.
• 22:49
  Speaker 2: So this is clearly not a report that the FED
• 22:53
  Speaker 2: worries about from an inflationary perspective. But to me, you know,
• 22:58
  Speaker 2: if you're the Fed, you're meeting right now and making
• 23:01
  Speaker 2: your decision on interest rates tomorrow. I don't think any
• 23:04
  Speaker 2: of this, anything in this report would sway me from
• 23:07
  Speaker 2: my decision to lower rates by a quarter of a
• 23:09
  Speaker 2: percent tomorrow when they go to announce that decision.
• 23:13
  Speaker 3: No, I don't think that that would be the case.
• 23:15
  Speaker 3: It does look like we still sit at a eighty
• 23:18
  Speaker 3: eight percent probability according to CEMEA futures that we will
• 23:22
  Speaker 3: see a rate cut at tomorrow's meeting at two o'clock tomorrow.
• 23:26
  Speaker 3: We get the info in that, but this doesn't change
• 23:29
  Speaker 3: that course at all.
• 23:30
  Speaker 2: In October, the rate of quits was a little change.
• 23:32
  Speaker 2: It was two point nine million. The rate was one
• 23:36
  Speaker 2: point eight percent. It was down though the quits rate
• 23:40
  Speaker 2: is down by about two hundred and seventy six thousand.
• 23:42
  Speaker 4: Over the year.
• 23:44
  Speaker 2: Specifically, the quits declined in accommodation and food services, healthcare
• 23:49
  Speaker 2: and assistance federal government. In addition to that, the total
• 23:56
  Speaker 2: separations were down, specifically in healthcare and social assistance again
• 24:00
  Speaker 2: and the federal government as well.
• 24:03
  Speaker 4: Layoffs.
• 24:05
  Speaker 2: Again, I don't think it's worth notable really seeing anything
• 24:08
  Speaker 2: there because you're just not seeing big layoffs according to
• 24:11
  Speaker 2: this report. If you go ask challenge your grand Christmas,
• 24:13
  Speaker 2: they would tell you another story. But again, we're not
• 24:16
  Speaker 2: seeing any big new moves here, and so again it's
• 24:20
  Speaker 2: backward looking. It's not telling us anything about this week,
• 24:24
  Speaker 2: or last week, or even anytime in the last month.
• 24:27
  Speaker 2: But I think what it does deliver for me is
• 24:29
  Speaker 2: some certainty that in October you did not see any
• 24:33
  Speaker 2: big surprise moves in the status of layoffs, hiring, or anything.
• 24:37
  Speaker 4: Else along those lines.
• 24:38
  Speaker 2: So if you've got a job, you're probably still pretty
• 24:42
  Speaker 2: incentivized to try and keep it because you're worried about
• 24:44
  Speaker 2: the state of the labor market if you're currently unable
• 24:47
  Speaker 2: to find one. I don't know that anything about this
• 24:49
  Speaker 2: report is going to make your life easier. Agreed, do
• 24:54
  Speaker 2: we want to talk about now? Let's keep on the
• 24:56
  Speaker 2: AI train for a moment here. So what happened after?
• 25:03
  Speaker 2: Is that what the AI chance? You would think that
• 25:05
  Speaker 2: the AI train would have a slightly more modernized horn,
• 25:08
  Speaker 2: don't you, rather than like a steam horn. It might
• 25:11
  Speaker 2: sound a little bit more like my four year old.
• 25:13
  Speaker 3: Son that we played train tracks every night. So you know,
• 25:15
  Speaker 3: I'm kind of kind of ingrained in my AI model
• 25:18
  Speaker 3: here that runs at a very low power.
• 25:20
  Speaker 4: That's at your request, I assume, yeah, exactly, get down here,
• 25:24
  Speaker 4: we're playing trains.
• 25:25
  Speaker 2: Uh So when Gemini three, Google's new large language model
• 25:30
  Speaker 2: was released that pretty much the same week, Sam Altman,
• 25:33
  Speaker 2: the founder of open Ai, came out and put out
• 25:35
  Speaker 2: a quote code red for his company.
• 25:37
  Speaker 3: I'd be so pissed about Sam Almon and that came out.
• 25:40
  Speaker 3: Who leaks that that? I said, code read? Because it's
• 25:43
  Speaker 3: been referenced a bunch. Yeah, and it's very self explanatory
• 25:46
  Speaker 3: what it means.
• 25:47
  Speaker 4: Oh, I'm not sure.
• 25:48
  Speaker 2: I think Sam Altman loves that kind of attention, you do, Yeah,
• 25:51
  Speaker 2: I tend to think that he loves the idea of,
• 25:54
  Speaker 2: you know, being publicized as declaring it a code read
• 25:57
  Speaker 2: from my I.
• 25:57
  Speaker 3: Just picture like a big red buttonized desk. Yeah, we
• 26:00
  Speaker 3: all do.
• 26:01
  Speaker 2: It's a Simpsons type situation going on. But in either case,
• 26:05
  Speaker 2: open ai is set to release a new model called
• 26:07
  Speaker 2: five point two, which like, at least you give me
• 26:12
  Speaker 2: some whole numbers in the numbers. So anyway, five point
• 26:15
  Speaker 2: two model this week. I think that if that thing
• 26:18
  Speaker 2: does not knock people's socks off, then there's gonna be
• 26:21
  Speaker 2: some more pressure on this company. I would personally not
• 26:24
  Speaker 2: be looking to release something new until I'm pretty confident
• 26:27
  Speaker 2: it can outperformed Gemini, but nonetheless they're going about that.
• 26:31
  Speaker 4: And I'm just kind of the Google move on.
• 26:36
  Speaker 2: This announcement was really big for a number of reasons,
• 26:40
  Speaker 2: but to me, the biggest one is not about Google
• 26:43
  Speaker 2: or open Ai. It's about the idea that with enough
• 26:48
  Speaker 2: determination and clearly a lot of money, Google was able
• 26:52
  Speaker 2: to do this. They were able to leapfrog the first
• 26:56
  Speaker 2: to market provider out there. Now, maybe it doesn't move
• 26:59
  Speaker 2: the needle because there is some advantage to the you know,
• 27:02
  Speaker 2: first to market when it comes with.
• 27:04
  Speaker 3: Eight hundred million active weekly users for chat TBT.
• 27:09
  Speaker 2: But on the other hand, it's not Deepseek, it's not
• 27:15
  Speaker 2: some Chinese AI startup that nobody's going to download the
• 27:18
  Speaker 2: app for.
• 27:19
  Speaker 4: This is Google that.
• 27:20
  Speaker 3: Has a lot of brand recognition that.
• 27:23
  Speaker 4: People are day that it was released.
• 27:25
  Speaker 2: It was automatically updated on my phone because I have
• 27:27
  Speaker 2: a Google phone, Like, they have a built in user
• 27:31
  Speaker 2: base here that I think they can quickly catch up on.
• 27:34
  Speaker 2: And guess what, so does Apple, so does Meta and
• 27:37
  Speaker 2: so the the story that I'm focused on is are
• 27:42
  Speaker 2: we seeing the commoditization of large language models? Are these
• 27:46
  Speaker 2: things just going to get better and better, cheaper and
• 27:48
  Speaker 2: cheaper and more and more competition, And in which case
• 27:52
  Speaker 2: where does.
• 27:53
  Speaker 4: That leave Opening?
• 27:54
  Speaker 2: Like I see where that leaves Google, right, they have
• 27:56
  Speaker 2: this built in user base. It's part of their overall infrastructure.
• 27:59
  Speaker 2: They can to be spending this money. I don't know
• 28:02
  Speaker 2: where it leaves open Ai and their verbin Ai doesn't
• 28:04
  Speaker 2: have another business.
• 28:05
  Speaker 3: They're vertically integrated Google is. They have the chip design.
• 28:08
  Speaker 3: We talked about that earlier in the show. They have
• 28:11
  Speaker 3: the data centers. They have a ton of training data
• 28:14
  Speaker 3: because there's been billions, I don't know trillions of searches
• 28:17
  Speaker 3: runs over the years on their interfaces. And like what
• 28:20
  Speaker 3: you said, they have the user base too. They have
• 28:22
  Speaker 3: billions of users of the Android phone, they have billions
• 28:25
  Speaker 3: of users of all the apps that they have. So
• 28:27
  Speaker 3: that's what's been the biggest fear, and that's all we've
• 28:31
  Speaker 3: talked about in terms of this open AI or this
• 28:34
  Speaker 3: artificial intelligence arms race. The concern that I have on
• 28:37
  Speaker 3: the model front on CHATTPT that this article dives into
• 28:40
  Speaker 3: a little bit, Mike, is when you have a business
• 28:42
  Speaker 3: in panic or co reed, we'll call it, some of
• 28:45
  Speaker 3: the guardrails will start to get put down a little
• 28:48
  Speaker 3: bit in attempts to catch up. And I won't try
• 28:52
  Speaker 3: to go too into the weeds here, but some of
• 28:55
  Speaker 3: chat TBT has leaned a little bit more on user
• 28:59
  Speaker 3: feedback to sort of generate the best responses. And the
• 29:02
  Speaker 3: problem can be if you're not leading on professionals or
• 29:06
  Speaker 3: other ways to confirm different responses, and you're leading on users,
• 29:11
  Speaker 3: you can kind of get this the cycle going where
• 29:14
  Speaker 3: you're giving users what they want and that's not always
• 29:18
  Speaker 3: the best thing. And we've seen some scary cases of
• 29:21
  Speaker 3: this in terms of mental health and psychological impacts of
• 29:24
  Speaker 3: users that have kind of lost themselves within these large languages.
• 29:28
  Speaker 4: Don't worry about that. We'll deal with that twenty years
• 29:30
  Speaker 4: from now, like we are with social media now.
• 29:32
  Speaker 3: Very true.
• 29:33
  Speaker 2: Let's take a quick break. When we come back, I
• 29:37
  Speaker 2: don't know if I can keep going on on more A.
• 29:40
  Speaker 2: We gotta go, Paramount, Let's go switch over to the
• 29:44
  Speaker 2: pending hostile takeover and the knife fight that's going to
• 29:47
  Speaker 2: occur over at Warner Brothers.
• 29:49
  Speaker 4: That's next.
• 29:49
  Speaker 3: The Financial Exchange text us.
• 29:52
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• 29:55
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• 29:58
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• 30:03
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• 30:07
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• 30:47
  Speaker 2: So last week we covered the announcement buy Netflix and
• 30:52
  Speaker 2: WarnerMedia that WarnerMedia had accepted Netflix offer for most of
• 30:57
  Speaker 2: their company was at twenty seven dollars seventy five cents
• 30:59
  Speaker 2: per share and included everything but the TV networks Turner
• 31:05
  Speaker 2: Media TV Networks. Since then, there has been a just
• 31:11
  Speaker 2: firestorm here about where this is going to go. Apparently
• 31:17
  Speaker 2: Larry Ellison, founder of Oracle close ties to the White House,
• 31:20
  Speaker 2: made a pretty quick call over to the White House
• 31:23
  Speaker 2: explaining his concerns regarding the acquisition and anti competitive nature
• 31:28
  Speaker 2: of it. And then this week we've had David Ellison,
• 31:34
  Speaker 2: who runs Paramount now expressing those same concerns and also
• 31:41
  Speaker 2: bringing the vote on the deal directly to shareholders. So
• 31:46
  Speaker 2: Paramount also made an offer for Warner Media. They wanted
• 31:48
  Speaker 2: to buy the whole shebang, and they wanted to do
• 31:51
  Speaker 2: it at thirty dollars a share.
• 31:54
  Speaker 4: And Warner turn them down.
• 31:56
  Speaker 2: They basically said, you know, we're going to be left
• 31:59
  Speaker 2: with a better by going with the Netflix deal here,
• 32:02
  Speaker 2: because we're still going to retain some assets that we
• 32:04
  Speaker 2: can sell later. Some expertise that I've seen has thrown
• 32:07
  Speaker 2: out you know, a value per share of thirty one
• 32:09
  Speaker 2: to thirty two dollars per share, given the legacy assets
• 32:12
  Speaker 2: that Warner will hold on to and then probably sell
• 32:15
  Speaker 2: off to another buyer. I think a few things are true. One,
• 32:20
  Speaker 2: Paramount really wants this deal to happen. I don't think
• 32:22
  Speaker 2: they want to compete with Netflix in the movie studio business.
• 32:26
  Speaker 2: Paramount does currently own a Hollywood movie studio. I don't
• 32:31
  Speaker 2: think they're already facing a lot of competition from Netflix
• 32:34
  Speaker 2: releasing their own movies. I don't think they want more
• 32:36
  Speaker 2: competition in that space. They seriously don't want the additional
• 32:40
  Speaker 2: competition with from a streaming well.
• 32:42
  Speaker 3: Because they needed for the streaming big time yep.
• 32:45
  Speaker 2: So they you know, Netflix here would very much solidify
• 32:49
  Speaker 2: their grasp on the streaming business as well, and so
• 32:53
  Speaker 2: they're going to make their pitch.
• 32:55
  Speaker 4: I think a few things are true.
• 32:56
  Speaker 2: One, I do think that this would be a much
• 32:58
  Speaker 2: faster deal for share holders that care about that, you know,
• 33:01
  Speaker 2: for Paramount to come in here and buy the whole company,
• 33:04
  Speaker 2: probably you're not going to.
• 33:06
  Speaker 3: Have as much on the anti test concern side of things.
• 33:09
  Speaker 3: I don't think, because Paramount's kind of the three or
• 33:11
  Speaker 3: four player in the streaming space.
• 33:14
  Speaker 2: Yeah, I'll argue, I'm not sure you shouldn't have more
• 33:17
  Speaker 2: as much scrutiny on it.
• 33:18
  Speaker 4: They own their own.
• 33:19
  Speaker 2: Movie studio, Like, you're going to see further consolidation there,
• 33:22
  Speaker 2: but I don't think you will larger because of the
• 33:24
  Speaker 2: ties to the White House and some pushes there too.
• 33:27
  Speaker 2: You're buying the whole company, so I think it would
• 33:29
  Speaker 2: close faster, and so that might be appealing to shareholders.
• 33:33
  Speaker 2: But honestly, what I hope you see is a bidding
• 33:35
  Speaker 2: war for this. I don't think that either can really
• 33:39
  Speaker 2: afford to dramatically jack up the price. But then, you know, hey,
• 33:44
  Speaker 2: if this is going to get really ugly, does Apple
• 33:46
  Speaker 2: step in and just say, yeah, we'll take it, like
• 33:48
  Speaker 2: we've got the cash to pay for this thing, and
• 33:50
  Speaker 2: you know, leave you both high and drive. It would
• 33:52
  Speaker 2: be interesting, That would be fascinating to me. But it
• 33:55
  Speaker 2: is going to continue to get uglier, I think over
• 33:59
  Speaker 2: over the next few months.
• 34:01
  Speaker 4: Here.
• 34:01
  Speaker 2: It's possible by the way that Netflix just gets scared
• 34:04
  Speaker 2: away from it. They're like, they could just say, you
• 34:06
  Speaker 2: know what, anti trust, we don't want to get on
• 34:08
  Speaker 2: the wrong side of the White House. We're just going
• 34:10
  Speaker 2: to back away from this deal, but they seem pretty
• 34:12
  Speaker 2: deep into it and I don't think they're going to
• 34:14
  Speaker 2: go that.
• 34:14
  Speaker 3: Well, that's what I'm wondering, because so Netflix came, that
• 34:17
  Speaker 3: deal was about eighty three billion dollars and then you've
• 34:19
  Speaker 3: got Paramount coming in a one hundred eight billion dollars. Now,
• 34:23
  Speaker 3: granted it's not apples to apples because of the some
• 34:25
  Speaker 3: of the asset differential, but assuming your Netflix, you probably
• 34:29
  Speaker 3: have to come close to meeting that bid. How much
• 34:31
  Speaker 3: higher do you want to go? And I have no
• 34:32
  Speaker 3: idea how high Netflix wants to go, but you make
• 34:35
  Speaker 3: a fair point. It's already a very significant increase from
• 34:38
  Speaker 3: where its offer was, granted with some additional assets as
• 34:42
  Speaker 3: part of it.
• 34:42
  Speaker 2: But or does Netflix just say, hey, we're going to
• 34:44
  Speaker 2: buy the whole thing, and part of the agreement will
• 34:46
  Speaker 2: be to spin it off ourselves, so we'll find the uh,
• 34:49
  Speaker 2: we'll find the buyer for this business, rather than you
• 34:51
  Speaker 2: having to find the buyer for the business. Like any
• 34:53
  Speaker 2: of those things are possible, but needless to say, this
• 34:57
  Speaker 2: is going to be entertaining.
• 34:58
  Speaker 3: So you also you also of the other wrinkle that
• 35:01
  Speaker 3: David Zaslov, who is the CEO of Warner Brothers, felt
• 35:05
  Speaker 3: as if this is speculation, to be clear that there
• 35:09
  Speaker 3: was rumors that they thought that he would be treated
• 35:12
  Speaker 3: more fairly and Netflix. If Netflix was to acquire Warner
• 35:16
  Speaker 3: Brothers and sort of keep him in a role for
• 35:20
  Speaker 3: a significantly longer period of time and have a lot
• 35:23
  Speaker 3: more job stability than he would perhaps run an interest
• 35:26
  Speaker 3: in which you can't have if you're selling your company.
• 35:29
  Speaker 2: You got although if that were the only incentive, then
• 35:31
  Speaker 2: you would have gone to Comcasts and sold to them
• 35:32
  Speaker 2: because they're going to make him the CEO of the entire.
• 35:36
  Speaker 3: It's that balancing act of like you have to maximize
• 35:39
  Speaker 3: sharehold of value and ultimately you got answer to the board.
• 35:41
  Speaker 3: And that's why this is going to become really problematic
• 35:44
  Speaker 3: for him. When you've got a bid that's significantly higher.
• 35:47
  Speaker 5: When the holidays roll in and the cold settles over
• 35:50
  Speaker 5: New England, find your escape in the US Virgin Islands.
• 35:53
  Speaker 5: Trade the freezing tempts and great skies for warm sun,
• 35:56
  Speaker 5: turquoise water and that easy island energy you can feel
• 35:59
  Speaker 5: the second you This December through early January, Saint Croix
• 36:03
  Speaker 5: ignites with the Crucian Christmas Festival, a celebration over a
• 36:06
  Speaker 5: century old Frederick said, comes a line comes alive with
• 36:10
  Speaker 5: colorful parades, live reggae, and streets filled with the sights
• 36:13
  Speaker 5: and flavors of real Caribbean culture. It's the holiday season
• 36:17
  Speaker 5: with a tropical beat. From there, explore Saint Thomas with
• 36:20
  Speaker 5: its duty free shopping and the legendary views at Magan's Bay.
• 36:23
  Speaker 5: Or slow down on Saint John, where quiet beaches and
• 36:26
  Speaker 5: National Park trails make every day feel like your own
• 36:28
  Speaker 5: private adventure. Getting there could not be easier. No passport
• 36:32
  Speaker 5: is needed, and there's no money to exchange. Just pack
• 36:35
  Speaker 5: light and step out of the cold into pure sunshine.
• 36:38
  Speaker 5: This holiday season, let yourself fall naturally in rhythm with
• 36:41
  Speaker 5: the heartbeat of the islands. Visit America's Caribbean paradise, the
• 36:44
  Speaker 5: US Virgin Islands. Go to visit USVII dot com and
• 36:47
  Speaker 5: book your book your trip today. That's visit USVII dot com.
• 36:52
  Speaker 4: Paul.
• 36:52
  Speaker 2: We do have the announcement from the FED coming tomorrow afternoon,
• 36:55
  Speaker 2: so we'll be covering it on this show on Thursday.
• 36:58
  Speaker 2: But one piece I find interesting options traders bracing for
• 37:00
  Speaker 2: a pretty big swing in stock prices. You can measure
• 37:04
  Speaker 2: this by the implied volatility moves, I'm not.
• 37:08
  Speaker 4: I suppose.
• 37:10
  Speaker 2: That the commentary could catch investors by surprise, but the
• 37:14
  Speaker 2: announcement itself does not seem to me like it's going
• 37:16
  Speaker 2: to they're going to cut by a quarter percent and
• 37:19
  Speaker 2: they're going to I mean, what are they going to
• 37:21
  Speaker 2: say other than we're gonna wait and see and.
• 37:24
  Speaker 3: It's going to be a high bar for us to
• 37:26
  Speaker 3: maybe do another cut. To me, like that print that
• 37:29
  Speaker 3: today and it.
• 37:31
  Speaker 4: Doesn't win it does anybody surprise anybody whatsoever? I can't.
• 37:34
  Speaker 2: I'm not sure why the investors are buying all these
• 37:36
  Speaker 2: options on potential volatility here, because to me, it's fairly
• 37:40
  Speaker 2: clear what is going to happen unless I'm missing something
• 37:43
  Speaker 2: on all.
• 37:43
  Speaker 3: Unless they were saying we're not cutting, that's the only
• 37:46
  Speaker 3: you know.
• 37:47
  Speaker 2: What could be interesting is you've had a few votes
• 37:50
  Speaker 2: now where FED members have been diverging on opinion, and
• 37:53
  Speaker 2: if you have a significant divergence of opinion here, like
• 37:57
  Speaker 2: you know, three voting members saying no.
• 38:00
  Speaker 3: Three quarters of a percent cover.
• 38:01
  Speaker 2: I'm saying half cot like that would potentially, you know,
• 38:06
  Speaker 2: really shake up markets a bit, so potential for some
• 38:09
  Speaker 2: volatility coming this up tomorrow afternoon, rather quick break, a
• 38:13
  Speaker 2: lot more to cover in the second hour of the
• 38:14
  Speaker 2: Financial Exchange.
• 38:15
  Speaker 4: We will be right back