Squawk Pod: A chip sell-off, Netflix’s report, & President Xi’s AI pitch - 07/17/26 | Audio Only

Bring in show music, please. >> This is Squawk Pod and I'm CNBC producer Cameron Costa. On today's episode, chip stocks are under pressure. JP Morgan Asset Management, global market strategist Hugh Gimber considers it a healthy correction, but he says relief won't come until we know more about big tech spending. For me, I think what's key here is not so much what the semis names are telling you themselves, but rather what we're going to get from the hyperscalers over the next couple of weeks >> and America's housing affordability problem. CNBC's Diana Olick. How do you fix housing supply? Joining her is our own Steve Leeman. >> If you want to invest in housing, you should buy shares in futon because that's what people are using. President Xiinping is pitching China as a leading AI partner. Ununice Yun reports from Shanghai. He's been preaching a whole lot of openness in contrast or at least to attempt to contrast the Chinese perspective versus the US closed model. >> Plus, President Trump's speech states side, LeBron's next move, and Netflix revenue has disappointed investors. And then there's its content. There's a lot of good content in a lot of places, >> but just not Netflix. >> It's Friday, July 17th, and Squawk Pod begins right now. >> Stand back by in 3 2 1. Cue it, please. >> Good morning everybody. Welcome to Squawkbox right here on CNBC. We are live from the NASDAQ market site in Time Square. I'm Becky Quick along with Joe Kernan. Andrew is off today. the other day when when IBM highlighted the potential problems with with software, the chip stocks were actually up. But >> now it's the chip stocks are under pressure around the globe. >> They're on such a tear that what what goes up must come down or or what do you do to shake out the weak hands? You you do things like assuming it's going to reacelerate down the road, but things can't just go up up up up without getting without making people doubt whether they should hold them. And that's the case in Korea this morning too. South Korea the Cosby off by about 6% overnight. Um that's an index that has risen so incredibly right rapidly. SK Hinx driving the way. But I I think the the market itself has doubled um over the course of this year and and then even some. >> So if you take a look yeah for the one year it's up by 113%. A 6% pullback is shocking in the averages until you consider just how high things have gotten to your point. And if you were in there, you'd be like, "Wow." Um, the probably the the hardest thing would be maybe to buy the dip because you just don't know if the whole thing is is ready to to unravel at this point how big how big an air pocket. But that's the great thing about the market, man. Just keeps you uh always keeps you guessing. It's never easy. Happy birthday. >> Thank you. It's not today. >> It's not. >> No, >> tomorrow. >> Yeah. We had to do it today though. >> Yeah, because you won't be here to torture me tomorrow. >> No, but it less uh all these songs that we were going to John >> Never mind. >> Netflix shares uh are plunging. Earnings of 80 cents a share beat estimates by a penny. >> That's not uh the problem, though. Uh revenue was slightly below. The third quarter guidance disappointed. Uh Wall Street Netflix forecast revenue growth of 11.7%. That's the smallest year-over-year uh increase of any quarter since 2023. The stock right now is down almost 10%. >> And I think the high we're at 66. The high is above 130. It wasn't in the last 52 weeks, but uh it did there it is. You can see that's that's where it was. And over to the left, that's where it was 800 before the split. 800 down to 200. And I it really was quite a buy >> if you look at even an even longer period because remember during co how it it and you were talking about like mortgaging your house if you could buy >> could buy it under 200 I would I would have bought but now >> I wouldn't >> no >> too there too many other pe too many other players and I think they got complacent and just uh I don't know the writers and the content that they've been putting up >> there's a lot of good content in a lot of places that's that's part of >> it's just not Netflix >> right no I I yesterday I finally said Widow Widow's Bay I kind of like and that's not even Netflix, you know. Uh I think that's Apple. Apple comes through occasionally with some with with some good >> watch some stuff on Prime last night, but there there's a lot of competition. That's >> HBO seems like, you know, they take it seriously if they have to >> try and do a a something that's going to last and is a real something that that you talk about. Oh my god. Homeland or or uh Game of Thrones, Breaking Bad, Sopranos, but this crap on uh Netflix, right? We're going to talk to >> Look, there are times that I watch stuff, too. It's just But it's there's there's a lot of competition. >> And I'm not going to say it's woke because people get mad, call me, you know, a boomer. President Trump addressed the nation from the White House last night, announcing plans to release declassified information related to the 2020 election and renewing his call for stricter voting requirements. Over a period of years, starting during the 2020 election cycle, the People's Republic of China carried out what is believed to be the largest compromise of election data in history, resulting in China's illicit acquisition of 220 million US voter files. That information includes names, addresses, phone numbers, political party preferences, and other sensitive data that would be needed to register to vote and engage in other nefarious activities. >> President Trump urged Congress to pass the Save America Act, which would require voters to show photo ID and proof of citizenship to register to vote. The president has repeatedly claimed without evidence that widespread fraud affected the 2020 election. He also claimed that China obtained millions of US v voter records but did not provide evidence. Much of that voter information is publicly available through states. Before the address, a Chinese spokesperson at the embassy in Washington said China has never and will never interfere in the presidential elections of the United States, but he doesn't have the vote. The president doesn't have the vote in Congress right now. He was basically at the end of that urging people to contact their representatives. >> I don't know through through budget reconciliation. They can't do the filibuster. They don't know the votes for that. That's for sure. They don't have the votes to get through the 60. >> So I don't know how they're going to do it. >> I think that's why he took it to the people. He's looking to add pressure. >> Right. Overnight in Shanghai, Chinese President Xiinping endorsed the building of open-source AI models. Uh that's an approach that uh has helped China close the gap with the US in AI technology. Uh without naming the US, she said um he said she said uh we should oppose overstretching the concept of national security in the field of AI or placing one's country one country security over that of others. He also called for a global effort to develop AI standards uh not one led by a single country. Our Ununice Yun is live in Shanghai. She's got more on that front. Ununice, it's good to see you. >> Hey, Becky. Well, President Xi spoke at China's World AI conference here in Shanghai, and he pitched for Beijing to lead the AI world order. He took a a veiled swipe at the US's proprietary models by saying that AI development quote should not be a solo performance. He also called for efforts to avoid what he described as historical injustice in AI. And he also praised what's being seen here as China's answer to the US's PAC silica initiative. So this is a group that was established last year but didn't really get much membership until this week. Uh 29 countries are going to be or have already joined uh not the United States. Um and this is meant to share technology and expertise in AI and ultimately to help set new standards when it comes to AI as well as rules. Now, President Xi had also cautioned against what he described as overstretching the concept of national security when it comes to AI. And today, he's been preaching a whole lot of openness in contrast or at least to attempt to contrast the Chinese perspective versus the US uh closed model. Now, of course, openness in China um is not really clear in terms of what they actually mean because even though this is the world AI conference, uh Open AI, Anthropic, the big LLMs are not here and generally the Chinese don't allow them to operate in China. And in fact, a lot of the talks in um today in in AI circles has been that Beijing could be moving to restrict foreign access to China's best AI models in the name of national security as well as to protect the technology and um maybe possibly to show that that China actually is very very competitive. Uh Moonshot, which is an AI company here, a small one, um just rolled out the world's largest openw weight uh um AI model that independent benchmarks say um is just as good as Fable guys. >> Ununice. Um thank you. I we've been watching what's happening. Are those birds flying in front of you, too? >> Oh, no. I think there might be some birds, but also dragon flies. >> Dragon flies. >> Sorry if that's distracting you, but I think it's cuz there's a light and it's sun down. Yes. >> Yeah, they were big. I was trying to avoid them and pretend that they're not flying. >> Yeah, >> we had images of the birds Hitch Hitchcock style here. >> Yeah, >> there could be drones in China. Ununice, don't say anything. >> Right. >> Miniature drones. Scary drones. >> No, there too many regulations right now. No drones. No drones. >> You know, Unice, what would you say? While President Xi is here, the security has been very, very tight. Very >> tiny scary drones. That's all we need. >> Um, Ununice, just overall the idea of this battle in the United States. We certainly look at it as a battle of China versus the United States. We think we're in the lead at this point and trying pretty rapidly to maintain that. How does China view all of this from that Graham perspective? >> Well, I think a lot of the the Chinese companies believe that the US is ahead. Um I mean there's a big question as to how much they are ahead and because we had this moonshot um announcement which came a little bit before the WIC um started u there were a lot of people who were saying you know look how good we are because these independent benchmarks arena AI have said that um moonshots this is it's called Kimmy K3 um is really one of the best if not the best right now in terms of um being able to help with the um web interface uh uh production or developing So that's so because of that, you know, there there are a lot of people here who are very hopeful, but they do see the US as ahead, at least at this stage, >> Ununice, thank you very much. It's good to see you. >> In sports news, basketball fans are waiting for LeBron James to make his free agency decision. Uh, and his call is impacting many people and businesses. Here's NBA Commissioner Adam Silver at CNBC's game plan summit yesterday. I guess all all politics are local. The way I think about it is we have to finish up the schedule, >> right? >> And where LeBron plays will affect the schedule. So I would like him to make his announcement already so we can finish the schedule because as you might imagine the teams are calling us, the networks are calling us and everybody wants to lock in the schedule. But it will influence how we set the schedule, how we set opening week, Christmas Day, etc. So, I need him to make a decision and but the direct answer is I have no inside information. >> Reports say LeBron's most likely choices are the Cavaliers, the Heat, the 76ers, the Warriors, or the Timberwolves. I'm not sure if that qualifies as most likely when you give six different teams. But, >> well, look, a lot of people have thought that Cleveland would be the way to >> some of the possible choices. Yeah, some of the possible choices, but the idea of doing those, but yeah, it's it's anybody's guess where where he's going at this point. He's the only one who really knows. The guess is that he will be the one who makes the announcement and everybody else will kind of scramble afterwards. >> And if you get him, what does it guarantee? Certainly doesn't guarantee >> ticket sales, >> right? Doesn't guarantee you that you're going to >> No, but my guess is he would be looking at the best way that he can possibly win, too, right? You go to a team where you feel like you can bring something home if this is going to be your last time around, >> right? President Trump's longtime teleprompter operator is under investigation by federal regulators in connection with bets allegedly made on prediction market cali related to statements made by the president. White House press secretary Caroline Levit did not name the operator, but said that he is on unpaid leave and that he didn't handle the device for the president's address last night. A person familiar with the investigation identified the operator as Gabriel Perez, who has handled teleprompter for Trump speeches all the way back to 2016 during the presidential campaign. He allegedly made more than $90,000 in profits on those trades, but most of that money was frozen by Koshi after the bets were flagged as suspicious. CNBC and Cali have a commercial relationship that includes customer acquisition and a minority investment. But this is one of those stories where look you can bet on all kinds of things markets that were never there before and there's always somebody who knows something. >> I mean insider trading used to be this remember on on Oliver Stone on the first Wall Street there was stockwatch and we're seeing some weird things happen. >> Now it's everything. >> It's everything in the world. How can we possibly figure out insider trading on this? >> Well, it right. And if you're looking at any of these markets and there's a big bet that like let's say where LeBron's going to go, >> right? Someone new >> or if there's there even on CNBC's states, you know, all the things that you can bet on that were never there before. It's just really interesting to try and get our heads around how you do insider trading when it's the entire public at large. Right. Khi, to their credit, though, are the ones who caught this in black. Cheese will be next. >> Coming up on Squawk Pod, we are unpacking the pressure on chip and memory stocks with JP Morgan Asset Management's Hugh Gimber. >> The question here is not about their earnings potential. Now, it's really about the sustainability of that earnings growth and therefore investors growing increasingly concerned about whether the earnings can be even better. You're listening to SquawkPod from CNBC today with Joe Kernan and Becky Quick. >> The benchmark Philly semiconductor sector index is down sharply from its June high. You're looking at a decline of about 17%. This morning, the drop is 4.3%. For more on the chip sector and the AI trade, we want to bring in Hugh Gimber, who is global global market strategist at JP Morgan Asset Management. Hugh, we we watch these kind of swoons with semiconductor prices and with chips. What do you think's happening under the surface? >> So, a few points to pick up on here. I think first of all, we should highlight that the earnings power of the semiconductor names remains absolutely rock solid. We've had a number of reports out over the past week or two from some of the biggest players in the space and they're delivering good earnings. But the question here is not about their earnings potential now. It's really about the sustainability of that earnings growth and therefore investors growing increasingly concerned about whether the earnings can be even better in 2027 or 8 or 9. For me, I think what's key here is not so much what the semis names are telling you themselves, but rather what we're going to get from the hyperscalers over the next couple of weeks because all of that earnings growth is because of hyperscaler capex. And so to see a floor go into semiconductors, to see the valuations on offer today start to present good value, I think you need to hear more from the hyperscaler names over the next couple of weeks, really reaffirming to investors that yes, capex estimates have already risen by a huge amount over the past 6 to 12 months, but that there's more room for them to increase again. And that's where you start to build conviction again in this longer term earning story for the semis. >> Well, that's key. Do the hyperscalers have to say we're going to continue to spend these amounts or do you think they need to rapidly or greatly advance ratchet up how much they're spending in order for the semiconductors to get another bid? >> I think they need to go higher. We've already seen significant upgrades year to date. If I just look at the biggest US hyperscalers, analysts came into 2026 looking for roughly $500 billion of AI capex from those biggest five names. today that stands at closer to 700 billion and that for me explains why analysts are already anticipating close to 100% earnings growth in semis. So I'm looking for more than just confirmation that that capex is going to be delivered. I think you're going to need to see earnings upgrades move further and and really there's a bigger picture point here which is that across the tech space it's unsustainable for only one group of a sub sector to be pushing too far away from the rest of the pack because ultimately they all need each other. You need the semis to be getting the revenues from the hyperscalers. You need the hyperscalers to be getting the revenues from the large language model providers. And ultimately for tech overall, you need sectors outside of tech demonstrating that demand for this technology is sufficient to allow all parts of the tech sector to keep a decent margin. >> So you're looking at earnings not just from the hyperscalers, but what every single um sector is going to be saying about what they're spending on AI. >> Effectively, I think you have to look at each sector's neighbor. You know, to form a view on one, you have to look at where that revenue is coming from. And similarly, the bigger picture that we've been grappling with on AI over the course of really the past two or three years is about the money that's going to come into tech from outside of the tech sector to justify the level of return on investment which investors want to see. Now, at the same time, I think there's an additional nuance perhaps to pick up on, which is that the position of some of these semis names who aren't the biggest and the best or indeed aren't the cheapest is where I see a bit more vulnerability. We've had headlines over the past 24 hours around the progress that Chinese models are making. We know that China is already highly effective at producing some of the cheapest and therefore for those semisconductors from the hardware names I think you have to demonstrate that if you can't compete on price you can really compete with a top tier product and so if you're looking across semis for opportunity today where clearly these moves are are quite extended for me you still have to be focused on an up inquality approach because it's the mid tier that looks most vulnerable to disruption coming out of China. >> Hugh, we've got to run, but is it fair? I mean, you sound fairly skeptical of of the idea that these chip names and others can continue to grow. Is that a fair assessment of your take? >> Look, I think the earning strength that we've seen today has been justified, but we need more evidence to come in the coming weeks. And when you put that into context of momentum seeing a sharp reversal, this to me is a healthy correction, but it only finds a flaw once we get that confirmation that capex plans are not just on track, but can continue to push higher. >> Okay, you thank you. >> Next on SquawkPod, a snapshot of America's housing, new data out from the Commerce Department, and analysis from our own team of experts, including Steve Leeman. bring the rate down. That'll improve affordability. Not in a situation where we have a supply deficit right? >> We'll be right back. >> Welcome back to SquawkPod. This Friday, we got some data on housing from the Commerce Department. New residential construction increased 19% in June, but that was driven largely by multifamily housing starts. The majority of home building in this country, single family housing, and those starts and permits for future construction were both down. This gets to a larger conversation about affordability and politics as you'll hear. Here's Becky. Steve Leeman and Diana Ol are both here to join us with more on that. Diana, why don't we start with you? >> Well, Becky, just a huge discrepancy between single family and multif family housing starts. And that is really the story of today's housing market. You have this headline number on starts of a 19% month-to-month increase in June, but that is 76% increase in multif family and actually a slight drop in single family. Now, we had this over supply in the multif family apartment market for the last 3 years. A record number of units coming onto the market and the builders pulled back. Well, now suddenly you have them seeing rents are starting to stabilize again. We just got a report from Collers this morning saying they were bullish on the multif family REITs because they feel that the multif family market has bottomed that is rents are coming up, vacancies are coming down and that's why you see this enormous jump in 76% in the multif family. Single family again we talk about this all the time. It's just remaining at these very low levels because of high mortgage rates. We've seen the average rate on the 30-year fix at about 6.6% just not moving at all in June. And that's probably why you see permits for single family are down as well. Single family builders have a lot of issues when it comes to the cost, land, labor, materials. And we saw that in builder sentiment, which fell again yesterday. We've seen builder sentiment in the 30 range. 50 is the line between positive and negative. Anything below 50 is negative. And we've been in the 30 range all year. So the builders are not bullish on their single family market. So again, these numbers are really indicative of this split between we're seeing multif family come back and single family just not moving. Back to you guys. >> Okay, Steve, what are you thinking? >> Well, a couple things on the import price story. Um, one of the things that's out there is this notion of are the uh end users or the uh exporters paying the tariffs. >> If import prices don't fall, it suggests that we're paying the tariffs. Does that math make sense to you? Explain that. Wait a minute. >> Well, if if the price of imported goods was going down, it would be it would show the discount for the tariff that's being paid. Okay. >> But it's not. Uh interesting. This is a surprise. The BLS saying higher prices for non-fuel industrial supplies and materials, capital goods and consumer goods, excluding autos. We're were um uh more than offset the lower prices for automotive vehicle parts. There could be a AI import part of this thing, right, which is those prices are going up as you know. So, that's a big part of it. Um, on the housing side, I I'm I'm just amazed by this debate we have, which is it's such an interesting debate. I don't know if you remember when I asked Kevin Worsh, the Fed chairman, about um whether or not he saw rates were neutral or not, and he said, "Yeah, everything but housing." >> And it we we can't have a separate um we can't have a separate interest rate for housing. But that's one of the areas that's really lagging. And I want to show you just remind you from our CNBC All-America economic survey what the 18 to 34 year old group says about housing. It's their number one issue by far. >> Well, it's it's right now isn't the average age for people buying a new house age 40 or something? Didn't it just go for 40? >> And maybe Diana Olick has a solution because she's our housing expert. Should we ask Diana how to fix that? And and are 18 to 34 year olds right, Diana, to be so concerned about this? >> Absolutely, they're right. All you hear about is affordability because remember, you know, you date the rate. You buy the house, you date the rate. So if your rate for your monthly payment on the mortgage is unaffordable, you're just not going to get into it. And also, they're having trouble because of inflation of saving for that down payment. Now, as Becky said, you're right, 40 has become the new firsttime buyer age, and that is extremely high. We were saying 30 before. But again, you know, it's how do you fix housing? Supply, Steve. You know, it's supply and demand. It's as simple as that. I am not an economist. You are. It's all about building more supply, getting more inventory in there. And you know, we have this talk about the single family rental investors and we have the new law that just went into effect that bans them from buying more unless it's build to rent. build to rent would be great for those investors to get involved in. But again, those investors are barely 4% of the rental market and just a tiny piece of the overall number of homes for sale. >> I'm going to be an economic geek here and just keep I keep coming back to this and I keep hitting my head over this. Bring the rate down. That'll improve affordability. Not in a situation where we have a supply deficit, right? You bring the rate >> prices keep going up. That's the price when we drop rates to 3%. >> It won't help you because you're still going to pay more. It's just going to be that the sellers. >> Can I just point out the demographics on the chart, 18 to 34 year olds from your survey, they're the ones who say that they have problems with housing prices. >> It's their number one issue. Yeah. >> That means the rent's too damn high because they're not home buyers, right? You got to be 40 before you're buying a house. >> It's going up again. 18 it is. >> 18 it is. But not if you're 30 years old just forming a house. You can get up. You can you could forming a family out. >> 30 year olds live at home. >> They do >> 50% some number. >> That's why we should be that's why the housing >> that's why it's 40 now because that's when you're moving out of your parents house. >> But the housing investment if you want to invest in housing you should buy shares in futon >> because that's what people are using. I mean look I I and and I think by the way um if I don't show it there but you go into the next cohort of uh what is it 35 to 49. Yeah. >> Uh housing's number two. >> Okay. So that's that's right right in there. And I guess the question is do we have a quick second for Diana if the housing bill addresses this issue for younger Americans? Diana? >> Not really. Only if you're into manufactured housing and maybe on the rental side a little bit with the single family rentals. But again, it's all about more supply. They're trying to help with zoning on that, but zoning is a local issue. It's not at the federal level. >> I'll be back Monday, Joe. survey results on what Americans think about socialism and capitalism. >> That was what it was. That was just I was going to say I was going to say to Rick, if you want to lower the survey >> from 18 to 34, if you want to lower the rent, just freeze it. >> But I think this is a reason why your 18 34 year olds are hot on socialism right now. >> Freeze the rent >> housing. >> That'll work. You'll get a lot more supply when you freeze that. Wait, wait till we come back Monday with these. >> We had Lfrack in yesterday. Joe's. If Joe's hair is real, it will stick to his head when his head when when the top flies off when he sees these results. >> That is a deep tease for you. Make sure you join us on Monday for more on the ongoing Squawk conversation about socialism, capitalism, and the economy. For now, that's where we leave you on SquawkPod today. Thank you for listening. Squawkbox is hosted by Joe Kernan, Becky Quick, and Andrew Ross Orcin weekday mornings on CNBC starting at 6:00 a.m. Eastern. To get the best parts of that three-hour TV show right into your ears, follow SquawkPod wherever you get your podcasts. We'll meet you right back here on Monday. Happy birthday to Becky and to all the other July birthdays out there. >> We are clear. Thanks, guys. >> Thank you so much.