Stocks Hit by AI & War Jitters | The Close 7/23/2026

>> THE COUNTDOWN IS ON. EVERYTHING YOU NEED TO GET THE EDGE OF THE END OF THE MARKET DAY. THIS IS "THE CLOSE." KATIE: HUNDREDS OF BILLIONS OF DOLLARS IN AI SPENDING AND $100 OIL SENDING SHOCK WAVES THROUGH THE MARKETS. LIVE FROM STUDIO TO A BLOOMBERG HEADQUARTERS IN NEW YORK, I'M KATIE GREIFELD. >> IT'S A LOT OF BREAD ON THE SCREEN. KATIE: LET'S TAKE A LOOK AT THE S&P 500. NOT QUITE AT SESSION THOSE THAT WE ARE GETTING CLOSER, DOWN 1.4 PERCENT RIGHT NOW. YOUR BIGGEST WAITS IN THE INDEX ARE TESLA AND ALPHABET, FOLLOWED BY AMAZON. YOU CAN SEE THAT COMING THROUGH WHEN YOU LOOK AT THE NASDAQ 100 DOWN BY ABOUT 2% AFTER THE EARNINGS WE HAD LAST NIGHT HEADING INTO INTEL AFTER THE CLOSE TODAY. KEEP AN EYE ON WHAT IS GOING ON IN BRENT. BACK ABOUT $100 A BARREL, RISING SIX POINT 8% TODAY ALONE. THAT IS PRESSURING YIELDS HIGHER ACROSS THE CURVE. 10-YEAR TREASURY YIELD TRADING JUST BELOW 4.70. BAILEY: NOT A GOOD PICTURE. LET'S LOOK AT TODAY'S NOTABLE MOVERS. GOOGLE RIGHT NOW DOWN SHARPLY MORE THAN 6.7 PERCENT. THAT IS THE WORST -- ON TRACK FOR ITS WORST DAY SINCE LAST YEAR, WIPING OUT 265 BILLION DOLLARS IN MARKET SHARE. TESLA DOWN 14%, ON PACE TO CLOSE AT ITS LOWEST LEVEL SINCE AUGUST 2025. YOU MENTIONED OIL. AMERICAN AIRLINES DOWN SEVEN .6%. GUIDANCE, WEAKER THAN EXPECTED, THEY CUT ON THE COST OF FUEL. ALL THE THINGS THAT GO INTO THESE FLIGHTS, ULTIMATELY HAS TO COME OUT OF SOMEONE'S POCKETS. KATIE: WHAT WE SEE IN OIL HAS PLENTY OF RIPPLE EFFECTS. LET'S PUT EVERYTHING TOGETHER WITH MIKE CONTOPOULOS, HEAD OF MULTI-ASSET MACRO INVESTING OVER AT JANUS HENDERSON. GREAT TO SEE YOU IN PERSON. WE HAVE TO START WITH AI, ESPECIALLY WHEN YOU START WITH ALL THOSE BIG RED NUMBERS WE HAVE ATTACHED TO THE EQUITY MARKET RIGHT NOW. A LOT OF THIS COMES DOWN TO THE FEAR THAT WE'VE BEEN TALKING ABOUT FOR SEVERAL QUARTERS NOW, ALL OF THIS CAPEX, HUNDREDS OF BILLIONS OF DOLLARS BEING FUNNELED AT AI, WHETHER IT IS TRULY SEEING THE RETURN THAT WOULD JUSTIFY SOME OF THE SPENDING THAT WE ARE SEEING. I WONDER WHEN YOU LOOK AT WHAT IS GOING ON IN MARKETS THIS WEEK, THIS MONTH, WHETHER THIS IS THE START OF SOMETHING MORE SUSTAINABLE IN TERMS OF A SELLOFF, OR WHETHER THIS IS JUST LATE-SUMMER INDIGESTION? MIKE: I THINK IT COULD BE SOMETHING MORE SUSTAINABLE, KATIE. YOU HAVE A TREMENDOUS AMOUNT TO SPEND OUT THERE ON TECHNOLOGY WHERE WE DON'T REALLY KNOW WHAT UTILIZATION IS GOING TO BE. IT SOUNDS VERY FAMILIAR TO ME LIKE THE OLD 1990'S AND TWO THOUSAND'S, BUILDING OUT INFRASTRUCTURE FOR THE INTERNET, EXPECTING A TREMENDOUS AMOUNT OF TRAFFIC THAT DIDN'T COME FOR SEVERAL YEARS. IT CAME, IT WAS REVOLUTIONARY, SO I AM NOT AN AI DENIER. IT IS NOT LIKE WE DON'T LIKE THE TECHNOLOGY, DON'T THINK IT WILL BE TRANSFORMATIONAL, BUT WE DON'T KNOW IF THE DEMAND WILL BE THERE TO JUSTIFY THE SPEND. I'M NOT SURE THE MARKETS HAVE WOKEN UP TO THIS YET. THE AMOUNT OF SPEND ON DATA CENTERS AND AI EFFECTIVELY ASSUMES WE ARE AT PEAK INNOVATION. IF YOU ARE A TECHNOLOGY BELIEVER, IF YOU THINK TECHNOLOGY IS CONSTANTLY INNOVATING AND CHANGING, THEN COMPUTE POWER IS GOING TO SHRINK. YOU WILL HAVE DATA CENTERS THE SIZE OF MANHATTAN THE DATA CENTERS THE SIZE OF THIS ROOM. YOU WILL SEE MORE EFFICIENT MODELS. AS WE KNOW, THINGS EVOLVE OVER TIME. ALL OF THE SPEND COULD BE, I DON'T WANT TO SAY WORTHLESS, BUT NOT PROFITABLE ANYTIME SOON. KATIE: YOU MENTIONED THE PHYSICAL FOOTPRINT WE ARE SEEING WITH THESE DATA CENTERS, THINGS TEND TO GET SMALLER, TECHNOLOGY TENDS TO GET SMALLER. WHO KNOWS WHAT WE WILL SEE IN A FEW YEARS. SOMEBODY MADE THE POINT THAT THE VERSION OF AI WE ARE USING NOW IS PROBABLY GOING TO BE THE FIRST VERSION WE USE IN OUR LIFETIMES. YOU THINK ABOUT THE POTENTIAL RIPPLE EFFECTS HERE, ALL OF THAT CAPEX FUNDING THE REST OF THE MARKET. IF WE STARTED TO SEE SOME SORT OF PULL BACK FROM THESE HYPERSCALERS, WHAT DOES THAT POTENTIAL DAISYCHAIN LOOK LIKE, IS THAT SOMETHING YOU ARE DISCUSSING? MIKE: YOU CERTAINLY HAVE SEEN SOME OF THE FOLLOW-THROUGH IN THE INDUSTRIAL SECTOR HERE IN THE U.S. WHEN WE LOOK OUT ACROSS THE GLOBE, THERE IS SO MUCH GROWTH OUT THERE THAT ARE NOT JUST THE HYPERSCALERS. IF YOU LOOK AT THE ALL COUNTRY WORLD INDEX, ALL OF THE EARNINGS GROWTH GREATER THAN 25 PERCENT, PROJECTED EARNINGS GROWTH GREATER THAN 25% FOR EVERY COMPANY IN THE ALL COUNTRY WORLD INDEX, THERE IS ONLY ONE HYPERSCALER IN THE TOP 200. SO THERE ARE 199 OTHER GROWERS OF GREATER THAN 25% EARNINGS GROWTH. THAT IS PHENOMENAL. AI IS NOT TOUCHING ALL 199 OF THOSE COMPANIES. BAILEY: HOW MANY ARE AI ADJACENT? MAYBE YOU ARE NOT A SEMICONDUCTOR COMPANY, BUT IF YOU ARE BUILDING THE COOLING CENTERS, EVEN IF YOU ARE NOT A AI COMPANY, YOU ARE BENEFITING FROM THE SPEND. MIKE: CERTAINLY THE CASE WHETHER IT BE THE HVAC COMPANIES, BALL BEARING COMPANIES, ABSOLUTELY. YOU HAVE SEEN THAT IN THE INDUSTRIAL SPACE, BUT YOU ARE SEEING GROWTH IN MORE THAN INDUSTRIALS. YOU ARE SEEING IT ACROSS A BROAD SWATH OF SECTORS, LOTS OF REGIONS AS WELL. WHEN YOU LOOK TO CHINA, WHEN YOU LOOK TO LATAM, OTHER AREAS THAT ARE COMMODITY PRODUCERS, NOT NECESSARILY AREAS OF THE WORLD TOUCHED BY AI IN THE SAME WAY THAT THE U.S. IS, CERTAINLY NOT FROM THE PERSPECTIVE OF BUILDING DATA CENTERS. EVEN IN EUROPE YOU ARE SEEING GROWTH. THAT IS NOT A BIG CENTER FOR HYPERSCALERS AND DATA CENTERS AND WHATNOT. IT IS NOT JUST A U.S. STORY, IT'S A GLOBAL STORY, AND YOU ARE STARTING TO SEE THAT GROWTH THROUGHOUT THE WORLD. WITHIN THE INDUSTRIAL SPACE HAVING TO DO WITH THE BUILD OUT THERE, BUT OUTSIDE, AS WELL. BAILEY: THE OTHER BIG STORY IS BRENT ABOVE $100 A BARREL, CRUDE NORTH OF NINE D, JUST SOUTH OF 92 DOLLARS A BARREL. CONCERNING? MIKE: YEAH, IT'S A LITTLE CONCERNING. WE HAVE BEEN IN THE CAMP THAT RATES WILL PROBABLY GO UP, NOT NECESSARILY GO DOWN. I'VE BEEN A BIG BELIEVER THAT YOU WILL NOT SEE A SUSTAINED THREE HANDLE ON THE 10-YEAR UNLESS YOU ARE IN RECESSION. MUCH MORE LIKELY TO HIT 5% ON THE 10-YEAR. THE HIGHER OIL GOES, THE HIGHER THOSE CHANCES COME. YOU HAVE HIGHER OIL AT A TIME WHEN JOBLESS CLAIMS ARE ESSENTIALLY THE LOWEST SINCE THE 1960'S, EARNINGS GROWTH IN THE U.S. IS HOVERING AROUND 20%, CREDIT SPREADS AT ALL TIME TIGHTS, ECONOMIC GROWTH IS REASONABLY STRONG. THERE IS -- AND INFLATION IS NOWHERE NEAR TARGET. I THINK ALL OF THIS CONSPIRES, INCLUDING ENERGY PRICES, OIL PRICES, TO A HIGHER 10-YEAR, HIGHER RATES. KATIE: WHAT DOES THIS MEAN FOR THE FED? WE ARE LESS THAN A WEEK OUT FROM KEVIN WARSH'S SECOND MEETING AS A FED CHAIR. YOU THINK ABOUT THE INFLUENCE OF MUCH HIGHER ENERGY BILLS. THAT IS GOING TO AFFECT CONSUMER BEHAVIOR. MIKE: IT COULD. IT HASN'T YET. WHEN YOU LOOK AT THE DATA, LOOK AT THE CONSUMER'S GASOLINE SPEND RELATIVE TO INCOME, IT IS AVERAGE AT BEST, HAS NOT EXPLODED. BECAUSE INCOME HAS GONE UP QUITE A BIT OVER THE LAST SEVERAL YEARS. THAT HAS BEEN THE ONE BIG SURPRISE, THE HIGHER OIL PRICES HAVE NOT DENTED CONSUMPTION YET. COULD IT? OF COURSE IT COULD. IF I'M THE FED, I HAVE TO TAKE THAT AS A DATA POINT. MY PRIOR THOUGHT WAS THAT THIS WAS GOING TO HURT CONSUMPTION, IT HASN'T, GROWTH IS STILL STRONG, INFLATION IS HIGH. WHAT TOOLS DO YOU HAVE? IT IS RATES, THAT'S IT. I'VE BEEN REASONABLY IMPRESSED WITH CHAIR WARSH IN TERMS OF HIS FIRST MEETINGS, THE COMMENTS HE HAS MADE. I THINK YOU WILL BE SERIOUS ABOUT INFLATION. IT IS CLEAR THE FED GOVERNORS WILL BE SERIOUS ABOUT INFLATION. WE THINK THERE IS A PRETTY GOOD CHANCE THEY'LL BE HIKING THIS YEAR KATIE: THAT IS A GOOD PLACE TO LEAVE IT. THAT IS MIKE CONTOPOULOS, HAD A MULTI-ASSET MACRO INVESTING OVER AT JANUS HENDERSON INVESTORS. COMING UP, AN IMPORTANT JUNCTURE FOR PRIVATE MARKETS. MATT HARVEY REVEALS WHERE THE OPPORTUNITIES LIVE, AND WHY DIRECT LENDING DOES NOT PRESENT SYSTEMIC RISK. BAILEY: FULL COVERAGE OF INTEL EARNINGS AFTER THE BELL. KATIE: THE UNITED NATIONS HOSTING A TOWN HALL IN ITS SEARCH FOR THE NEXT U.N. SECRETARY GENERAL. THE FOUNDATION'S CEO ELIZABETH COUSENS WILL JOIN US NEXT TO DISCUSS WHAT IS NEXT FOR THE ORGANIZATION. ALL OF THAT COMING UP NEXT ON "THE CLOSE." ♪ KATIE: 10-YEAR YIELD SETTING THE HIGHEST LEVEL SINCE JANUARY 2025 AS TENSIONS RISE IN THE MIDDLE EAST. THE MOVE COMES AMID AN UNCERTAIN BACKDROP WITH INFLATION REMAIN ELEVATED. JOINING US TO DISCUSS IS DR. ATSI SHETH, CHIEF CREDIT OFFICER OVER AND MOODY'S CREDIT RATINGS. GREAT TO HAVE YOU ON SET WITH US. YOU THINK ABOUT WHAT WE ARE SEEING WHEN IT COMES TO THE TREASURY CURVE, THESE LONGER DATED YIELDS RISING, REALLY RISING ACROSS THE CURVE. HOW STRUCTURAL DO YOU THINK THIS COULD BE? ATSI: IT IS ABSOLUTELY STRUCTURAL IN OUR OPINION. WE THINK WE HAVE ENTERED A NEW MACRO REGIME. BY MACRO REGIME, I DEFINED IT AS STARTING A FEW YEARS AGO, AND VERY DIFFERENT FROM THE DECADE WE SAW AFTER THE GLOBAL FINANCIAL CRISIS. WHAT'S IMPORTANT ABOUT THIS MACRO REGIME, STRUCTURALLY HIGHER INFLATION, HIGHER INTEREST RATES AS A RESULT, BUT ALSO WIDER FISCAL DEFICITS, AND THE POSSIBILITY THAT THE GLOBAL UNCERTAINTY YOU SEE WILL BE SOCIALIZED FURTHER AND ONTO THE GOVERNMENT BALANCE SHEET. KATIE: I WOULD LOVE TO GET INTO THOSE DRIVERS MORE. I AM TAKING A LOOK AT YOUR NOTES. YOU ALSO MENTION THE FACT THAT WHEN WE LOOK AT THE CREDIT MARKET, WE ARE SEEING MUCH, MUCH MORE ISSUANCE THERE. I WONDER WITHIN THAT POTPOURRI OF WHAT WE ARE SEEING WHEN IT COMES TO STRUCTURALLY HIGHER INFLATION, HIGHER POLICY RATES AS A RESULT, WHERE WOULD YOU RANK WHAT WE ARE SEEING ON THE DEBT ISSUANCE ASIDE? ATSI: I WILL TELL YOU AN ANECDOTE. WE WERE AT MOODY'S, A GROUP OF CREDIT SPECIALISTS TALKING ABOUT HOW SOVEREIGN YIELDS ARE NOW UP TO LEVELS, WHETHER IT IS THE U.S., JAPAN, EUROPE, UP TO LEVELS BEFORE THE GLOBAL FINANCIAL CRISIS. QUITE HIGH. AT THE SAME TIME, HOW YIELD SPREADS AT HISTORIC LOWS. SO WHICH MARKET IS WRONG, IS THE SOVEREIGN MARKET MISJUDGING WHERE TO GO OR IS THE HIGH-YIELD MARKET MISS JUDGE MERCHAN GO? WE DECIDED THAT ACTUALLY BOTH OF THESE ARE TELLING THE SAME STORY. TO YOUR POINT, THE SOVEREIGN MARKET IS ACTUALLY PRICING IN THE GEOPOLITICAL UNCERTAINTY, MACRO UNCERTAINTY. WHAT WE ARE SEEING IN THE CREDIT MARKET IS A LITTLE BIT OF DIVERSIFICATION OF FUNDING. YOU SEE THAT LOWER RATED ENTITIES MIGRATING INTO THE PRIVATE CREDIT MARKETS WHICH CREATES A DIVERSE SOURCE OF FUNDING. YOU ALSO SEE, UNTIL TODAY PERHAPS, THIS RETURN ON CAPEX INVESTMENT FROM TECHNOLOGY. EARNINGS HAVE BEEN PRETTY SOLID SO FAR. THE CORPORATE CREDIT MARKET IS LOOKING AT SOLID EARNINGS, THE HOPE OF PRODUCTIVITY, RETURNS ON INVESTMENT, LOOKING AT MIGRATION INTO OTHER AREAS OF FUNDING BESIDES THE BOND MARKET. IMPORTANTLY, IT'S EXPECTING THAT IF FINANCIAL TURBULENCE SHAKES ALL OF THIS UP, THE SOVEREIGN WILL STEP IN. BAILEY: YOU MENTION A ROTATION INTO PRIVATE CREDIT WHICH SEEM TO BE THE BOGEYMAN, HAS BEEN FOR THE BETTER PART OF THIS YEAR. WHAT DO YOU TAKE AWAY FROM A ROTATION INTO A MARKET THAT HAS HAD ITS SHARE OF DOWNSIDES? ATSI: ON THE ONE HAND, A DIVERSIFICATION IN YOUR FUNDING SOURCES IS A POSITIVE THING. IT JUST ALLOWS BOTH BORROWERS AND LENDERS TO FIND NEW WAYS TO DO WHAT THEY WANT TO DO. SOME OF IT TENDS TO BE VERY LONG-TERM CAPITAL AND PENSION FUNDS INSURANCE SO YOU COULD SAY THAT'S EXACTLY THE KIND OF CAPITAL YOU WANT TO GO INTO LONG-TERM FINANCING. SO THAT'S A GOOD SIGN. ON THE SIDE OF CONCERN IS OPACITY AROUND VALUATION, CONCERNS AROUND LIQUIDITY, AND I THINK WE'VE SEEN THOSE CONCERNS PLAY OUT BUT THE MORE LIGHT WE SHINE ON THOSE ISSUES THE LESS CONCERNING THEY BECOME. BAILEY: TO COME BACK TO THE POINT YOU MADE ON THE SOVEREIGN ASPECT, WHEN I LOOK AT WHERE WE ARE IN 2026 AND COMPARE IT ANY STRETCH OF HISTORY, IT KIND OF IS JITTERY, RIGHT? WHEN YOU'RE LOOKING AT WHAT YOU'RE SEEING AND WHAT IS BAKED INTO THE MARKET, IS THAT A CAUSE OF CONCERN FOR THE REST OF THE YEAR AND FOR 2027? >> I LOOK AT IT TWO WAYS. ONE IS MARKETING -- MARKET SIGNALING THAT FISCAL DEFICITS ARE LIKELY NOT GOING TO NARROW IN THE NEAR FUTURE, AND THEY ARE NOT EXPECTING A NARROWING. IS THE MARKET SIGNALING -- WHAT WE SEE INSIDE FOR NEIL'S THE STUFF THAT'S GOING ON ELSEWHERE. THE MARKET IS SIGNALING THAT INFLATION IS NOT GOING DOWN AS A HURRY IS CONSEQUENTLY HAS HIGHER RATES. WHAT IS SOMETHING TO MAYBE THINK ABOUT, THE LAST FIVE YEARS WE'VE HAD SHOT AFTER SHOT AFTER SHOT. AND GEOPOLITICS, OIL PRICES, SUPPLY SHOCKS, AND SOVEREIGNS HAVE STEPPED IN TO FUND WHATEVER IT IS THAT NEEDS TO BE SOCIALIZED. THE FISCAL CAPACITY FOR THE NEXT SHOT IS DIMINISHED. BAILEY: WE WILL BREAK THAT DOWN WHEN IT DOES HAPPEN. THE CHIEF CREDIT OFFICER OVER AT MOODY'S RATINGS. COMING UP, ALPHABET SAAS BEEN SENDING SHOCKWAVES THROUGH THE AI TRADE. THAT'S NEXT. THIS IS "THE CLOSE" ON BLOOMBERG. ♪ KATIE: TOM PART TOP CALLS, LOOKING AT SOME OF THE -- TIME FOR OUR TOP CALLS. MORGAN STANLEY LESS THAN ELECTRIFIED ABOUT TESLA'S LATEST EARNINGS, DROPPING THE PRICE TARGET DOWN TO $400 FROM $417 WHILE KEEPING AN EQUAL WEIGHT RATING. THE FIRM SAYS TESLA'S ACCELERATED SPAN IS A NECESSARY INVESTMENT TO MAINTAIN ITS LEADERSHIP IN AUTONOMY AND ROBOTICS. INVESTORS NEED TO SEE TANGIBLE MILESTONES IN ITS MOBILE TAXI ROLLOUT AND ITS OPTIMIST ROBOT PROGRAM. SHARES DOWN 14%. NEXT IN LINE, DOLLING UP THE RATING ON AT&T, GOING TO OUTPERFORM. SAYING THE RESULTS INCLUDED STRONG ACCOUNT GROWTH, BUYBACK ACCELERATION AND A CLEAR PATH TO EBITDA IN BETWEEN 26, POINTING TO A RECOVERY IN THE STOCKS. SHARES DOWN SLIGHTLY. MORGAN STANLEY WITH AN OVERWEIGHT RATING AND A $36 PRICE TARGET, THE FIRM IS ENCOURAGED BY RIGHT SIGNING A LEASE WITH STRONG ECONOMICS THIS SUMMER DUE TO THEIR SITE SIZE AND GRID ENERGY CONNECTION. NOTING THEY STILL HAVE MORE BITCOIN MINING FACILITIES RIGHT FOR CONVERSION. THOSE ARE SOME OF OUR TOP CALLS. BAILEY: WE ARE WATCHING THE GRANDDADDY OF THEM ALL, ALPHABET SHARES DOWN 7%, ON PACE FOR THEIR WORST DAY SINCE MAY OF LAST YEAR. AI SPENDING CONTINUES TO BE A THORN IN THAT COMPANY'S SIDE. JOIN IN US -- JOINING US IS SENIOR RESEARCH ANALYST AT MIZUHO, HE COVERS A STOCK WITH AN OUTPERFORM RATING. RIGHT NOW IT'S TRADING AT 318. WHAT IS WALL STREET MISSING AFTER THESE RESULTS? >> TO SOME EXTENT, WE ARE SEEING A PERFECT STORM, WHERE THE COMPANY HAD A LESS THAN CLEAN QUARTER, SOME THINGS WERE EXTRAORDINARILY POSITIVE AND SOME ARE A LITTLE MESSY. CAME INTO THIS WITH THE ELEVATED VALUATION AND'S ALSO HAVING AT THE SAME TIME AS THIS ESCALATING CONFLICT IN THE MIDDLE EAST, RISING OIL PRICES, RISING INTEREST RATES CAUSING A LITTLE BIT OF A RISK OFF ACROSS TECH. THOSE THINGS ARE GENERALLY NOT GOOD FOR TECH. BUT THE QUARTER ITSELF HAD SOME REALLY POSITIVE SIGNS. THE CLOUD BUSINESS IS ACCELERATING MASSIVELY, MARGINS COMING IN MUCH BETTER ON THE CLOUD SIDE. IT'S LESS THE CAPEX UPSIDE AND MORE THE ENVIRONMENT WE ARE IN WITH THE MACRO STOP, AND THEN THE SEARCH BUSINESS, IT WAS THE FIRST TIME IN SEVERAL QUARTERS THEY DID NOT BEAT THE NUMBER HANDILY AND THEY TALKED UP TOUGH COMPS IN THE SECOND HALF. WHEN YOU LOOK AT WHERE THE CONSENSUS IS MODELING, THE CORE SEARCH BUSINESS FOR NEXT YOUR, GROWTH IS A LITTLE BIT PUNCHY. COMING INTO THE QUARTER LAST NIGHT, CONSENSUS WAS FALLING 13% FOR NEXT YOUR GROWTH. IT MOVE DOWN TO 12. I THINK SOME OF THIS IS JUST THE CORE BUSINESS WHICH HAS BEEN DOING REALLY WELL, IT'S JUST STARTING TO SLOW DOWN A LITTLE BIT. BAILEY: WE SAW MONTHLY USERS OF THE GEMINI AI SYSTEM LOW ESTIMATES IN THE FIRST QUARTER. ARE STARTING TO SEE SOME OF THE SPENDING AND THE VISION OF HOW GEMINI IS PLAYING OUT? >> WHEN YOU LOOK AT CLOUD REVENUE, THEY DID 82% WORLD AND CLOUD REVENUE. CONSENSUS WAS MODELING 65. THAT IS AN EXTRAORDINARY NUMBER. WE THINK IT WILL ACCELERATE FURTHER QUARTER. THEY ARE SEEING JUST UNBELIEVABLE DEMAND FOR AI. SO I THINK WE HAVE A LOT OF EVIDENCE THAT THERE IS A HEALTHY ROI ON THIS SPENT AND THEY ARE INVESTING AND LEANING INTO THIS DEMAND. I THINK THAT ALL CHECKS OUT FROM OUR VANTAGE POINT. KATIE: I'M INTERESTED TO KNOW WHAT YOU MAKE OF SOME OF THE FUNDRAISING THEY HAVE PUT THERE WHEN IT COMES TO ALPHABET, BOTH IN THE DEBT MARKETS BUT WHEN IT COMES TO THEIR EQUITY RAISES AS WELL. HOW ARE YOU FACTORING THAT INTO YOUR ANALYSIS OF THIS COMPANY? LLOYD: WHEN THEY DID THE EQUITY RAISE, IT CAUGHT EVERYBODY OFFGUARD. THIS IS A COMPANY THAT STILL IS VERY UNDER LEVERED AND MUD WITH THINK THEY HAVE PLENTY OF DEBT CAPACITY, WHY ARE THEY TAPPING EQUITY MARKETS? WE ARE BY NO MEANS FIXED INCOME EXPERTS BUT TALKING TO OUR COLLEAGUES WHO ARE, THERE IS CERTAINLY MORE CAPACITY FOR ANY INDIVIDUAL HYPERSCALER TO RAISE MORE DEBT. THERE'S PLENTY OF LEVERAGE RATIO CAPACITY. THE CHALLENGE IS THE DOLLAR MAGNITUDE OF WHAT THESE COMPANIES ARE RAISING WHEN AGGREGATED IS STARTING TO BECOME A MEANINGFUL PORTION OF THE CORPORATE BOND MARKET. SO, SURE, IF GOOGLE ONE TO ADD ANOTHER $100 BILLION OF DEBT, IN AND OF ITSELF, THAT DOESN'T LOOK LIKE IT WOULD BE A PROBLEM FOR CREDIT RATINGS, FOR FIXED INCOME INVESTORS. BUT WHEN ALL OF THEM START TO PUT BIGGER AND BIGGER NUMBERS, ALMOST THE SIZE OF THE ENTIRE CORPORATE BOND MARKET, I DON'T THINK IT IS A LEVERAGE ISSUE. I THINK IT'S JUST A QUANTUM OF DOLLARS. WHAT WE ARE SEEING IS, THEY ARE TAPPING CONVERT MARKETS, EQUITY MARKETS, AND I THINK IT MAKES SENSE. I ALSO THINK THAT WE ARE DONE FOR THE TIME BEING ON THE EQUITY SIDE, AT LEAST AT ALPHABET, AND THEY WILL BE RAISING DEBT TO FUND INCREMENTAL CAPEX OVER THE NEXT YEAR OR SO. I THINK THERE IS CAPACITY TO DO THAT. THERE'S A LITTLE BIT OF INDIGESTION IN THE FIXED INCOME MARKETS AND WE ARE SEEING THAT TODAY. KATIE: YOU ARE SEEING THAT ALSO IN TECH SECTOR SPREADS OVER THE LAST COUPLE OF MONTHS. PART OF THE REASON WE ARE SO FOCUSED ON ALPHABET EARNINGS IS BECAUSE WE ARE EXPECTING THEM TO SET THE TONE FOR THE REST OF THE MAGNIFICENT 7, FOR THE REST OF THE HYPER-SCALERS. IF YOU THINK ABOUT WHAT WE LEARNED LAST NIGHT AND WHAT WE ARE SEEING IN THE STOCKS TODAY, IT SEEMS LIKE AI CAPEX SCRUTINY IS GOING TO BE ONCE AGAIN THE STORY OF EARNINGS. LLOYD: WHAT I THINK IS OUT THERE IS, EVERY MONTH WE SPEAK TO THE INVESTMENT WORLD, IT'S EXPECTING CAPEX TO GO UP. IN OUR MINDS, THE BIGGEST SURPRISES QUARTER WAS THE MAGNITUDE OF REVENUE SURPRISE AND MARGIN SURPRISE AT GOOGLE CLOUD. IN OUR MINDS, THAT'S VERY GOOD FOR THE BROADER AI COMPLEX. THE ROI IS COMING THROUGH. THE DEMAND IS THERE. SO IT MAKES SENSE TO BE BUILDING INTO THAT, IN OUR MINDS. I WOULD ALSO SAY, THINK IT'S STILL VERY EARLY IN BROADER ENTERPRISE ADOPTION. WHEN I TALKED TO CEO'S, WE ARE JUST STARTING TO REALLY LEVERAGE THIS STEP. KATIE: THAT'S A GOOD PLACE TO LEAVE IT. COMING UP, WE ARE AT AN IMPORTANT MOMENT IN PRIVATE MARKETS, ACCORDING TO MATT HARVEY. HE IS IN MIDDLE MARKET DIRECT LENDING AT PGM. THAT IS NEXT. THIS IS "THE CLOSE." KATIE: IT'S ABOUT 3:30 P.M. IN NEW YORK. THIS IS THE COUNTDOWN TO THE CLOSE. WE ARE KEEPING AN EYE ON EARNINGS. A LOT OF FOCUS ON TECH, OF COURSE. BUT IT IS NOT JUST TECH. WE ARE HEARING FROM A LOT OF THESE ASSET MANAGERS, THESE ALTERNATIVE ASSET MANAGERS. BLACKSTONE, SHARES UP SLIGHTLY TODAY AFTER REPORTING A PRETTY BIG JUMP WHEN IT COMES TO PROFITS. BAILEY: A SOLID REPORT AND IT GIVES THE OPPORTUNITY FOR MANAGEMENT TO INTERACT WITH WALL STREET AND THOSE OF US IN THE MEDIA, TALK ABOUT THE STORY AND SHED A LITTLE LIGHT ON HOW THE BUSINESS IS OPERATING. YOU'VE GOT TO REMEMBER, EVEN AS WE LOOK TOWARDS BLUE OWL AND ARIES AND APOLLO RESULTS, BLUE OWL DOWN, EVERY STONE 25%, CARLISLE DOWN 25%. KATIE: IT IS GOING TO BE INTERESTING TO HEAR FROM BLUE OWL. THINK ABOUT THE PRIVATE CREDIT INDIGESTION WE SAW THE START OF THE YEAR. BLUE OWL IN THE EPICENTER OF THOSE RESULTS COMING JULY 30. BUT LET'S KEEP THIS DISCUSSION GOING WITH MATT HARVEY, HEAD OF MIDDLE-MARKET DIRECT LENDING OVER AT PGIM. GREAT TO HAVE YOU WITH US. WE WANT TO DIG INTO THAT MIDDLE-MARKET, BUT GIVE US THE LAY OF THE LAND HERE BECAUSE WE ARE SITTING HERE AT THE END OF JULY. WHAT AN INTERESTING COUPLE OF MONTHS THE PRIVATE CREDIT INDUSTRY HAS HAD. I WONDER WHERE YOU THINK WE ARE IN THAT STORY. MATTHEW: GREAT TO BE HERE, KATIE. IT SURE HAS. IT CERTAINLY HAS BEEN A MOMENT WHERE THE INDUSTRY HAS BEEN TESTED TO SOME EXTENT IN CERTAIN STRUCTURES, ANYWAY. WHAT WE SEE IS A VERY BULLISH OUTLOOK BECAUSE THAT BULLISH OUTLOOK STARTS WITH SUPPLY. STRUCTURALLY, THERE ARE MORE ISSUERS EVERY DAY COMING TO THE PRIVATE CREDIT MARKET. THAT IS COMING IN THE INVESTMENT GRADE CREDIT INFRASTRUCTURE CREDIT ASSET. WHAT WE SEE SETTLING DOWN A BIT IS THE QUESTION OF FLOWS. YOU MENTIONED SOME OF THE RETAIL VEHICLES OUT THERE AND MANAGERS TO MANAGE THOSE. WE ARE SEEING THOSE TRENDS IMPROVE A LITTLE IN THE SECOND QUARTER, REDEMPTIONS AGAINST SUBSCRIPTIONS. ROUGHLY FLAT. WE THINK THAT IS A SIGN OF CONFIDENCE FOR THE MARKETPLACE AS DEMAND BUILDS BACK IN FOR THESE ASSETS THAT ARE SHOWING STRONG VALUE FOR INVESTORS. KATIE: LET'S TALK A LITTLE BIT ABOUT THE MIDDLE MARKETS. THAT IS YOUR AREA OF SPECIALTY. I WONDER WHAT YOU ARE SEEING FROM WHERE YOU SIT, BECAUSE YOU THINK ABOUT MIDDLE-MARKET PE TRANSACTIONS, THEY HAVE BEEN A LITTLE BIT SLOW AS OF LATE. WHEN IT COMES TO THE DIRECT LENDING SIDE, WHAT ARE YOU SEEING? MATTHEW: WE ARE SEEING IMPROVING SUPPLY. I THINK WHAT THE MARKET HAS BEEN CONSTRAINED BY THE LAST COUPLE OF YEARS IS AN EVER MOVING TARGET OF ECONOMIC OR GEOPOLITICAL UNCERTAINTY. WHAT HAS HAPPENED DURING THAT TIME, YOU MENTION PRIVATE EQUITY BUYOUTS. THAT MEANS PRIVATE EQUITY INVENTORY HAS AGE. IF YOU LOOK AT THE M&A PACE TODAY, IT WOULD TAKE NINE YEARS TO CLEAR THAT LEVEL OF PRIVATE EQUITY. AT THE SAME TIME, WE SEE THE ADOPTION CURVE INCREASING OUTSIDE OF PRIVATE EQUITY SPONSORED BUSINESSES. HE REFERENCED THE MIDDLE-MARKET. THAT IS WHERE WE FOCUS AT PGIM. WE BELIEVE THERE ARE 2000 AND ADDRESSABLE ISSUERS. PENETRATION IS ONLY 10%. BUT THE BIGGER STORY IS, IF YOU CAN ACCESS THE OTHER 90% THAT ARE NON-SPONSORED FAMILY-OWNED COMPANIES GOING THROUGH EVENT DRIVEN RECAPITALIZATIONS AND GENERATIONAL TRANSFERS, ETC., IT OPENS UP A HUGE AMOUNT OF SUPPLY. I THINK THAT'S WHERE WHEN YOU HEAR FROM MANAGERS LIKE US ABOUT THE OPPORTUNITY, THAT'S WHERE WE SEE A MUCH BIGGER PICTURE THAN WHAT THE INDUSTRY HAS HISTORICALLY FOCUSED ON. BAILEY: WHEN YOU ARE LOOKING AT SOME OF THOSE BUSINESSES, YOU MENTIONED NONSPONSORED FOUNDER OR FAMILY LET OPERATIONS, WHO IS THE NET BUYER FOR PRIVATE CREDIT FOR THAT TYPE OF VEHICLE? AND IS THERE ANY TYPE OF SCAR TISSUE AROUND WHAT WE'VE SEEN OVER THE LAST FEW MONTHS? MATTHEW: I THINK THAT IS THE BEAUTY OF THAT MARKET, AND I WILL FRAME IT TWO WAYS. NUMBER ONE, THE BUYER IS AGNOSTIC. I THINK THE BUYER CAN BE AN INVESTOR IN A GREEN VEHICLE. IT CAN BE A LARGE INSURANCE COMPANY, PENSION FUND. BECAUSE WHAT WE ARE DOING IS WE ARE CREATING AN ASSET THAT WE ORIGINATE BILATERALLY AND WE ARE OFFERING EXCESS RETURN FOR THAT ASSET BY TRADING OFF LIQUIDITY. IF YOU RUN AN ASSET LIABILITY PROGRAM LIKE AN INSURANCE COMPANY OR YOUR SECURING -- SEEKING HIGHER DIVIDEND YIELD, THAT IS VERY VALUABLE. THE OTHER DIMENSION THAT WE THINK IS REALLY POWERFUL IS THIS QUESTION OF A UNIQUE ASSET. THE MIDDLE-MARKET IS STOCKED WITH REAL ECONOMY BUSINESSES. WE HAVE A MUCH LARGER ISSUER SET TO SELECT FROM. AND THAT MEANS WE CAN CREATE LESSER CONCENTRATIONS THEN YOU HAVE IN THE BROADER CAPITAL MARKETS. TAKE AI AND DATA CENTERS. IT HAS BEEN A THEME THROUGHOUT THE YEAR. THE INVESTMENT-GRADE BOND MARKET IN TERMS OF EXPOSURE TO THOSE ISSUERS HAS INCREASED DRAMATICALLY OVER THE LAST 12 MONTHS. IN THE MIDDLE-MARKET, WE SEE THE EFFECTS OF THAT IN A WAY THAT IS GOOD FOR THE ISSUERS. BUT BY AND LARGE, YOU HAVE A LARGER PORTFOLIO WELL DIVERSIFIED OVER BASIC BUSINESSES AND THAT'S WHAT WE SEE THERE. BAILEY: TO DIVE INTO SOME OF THOSE OPPORTUNITIES, WHERE ARE YOU SEEING CLIENTS OR POTENTIAL CLIENTS REALLY WANTING TO KNOCK ON YOUR DOOR AND SAY WE WANT TO ACCESS THIS MARKET, HELP US STRUCTURE THOSE DEALS? IS IT FOR COMPANIES IN THE INDUSTRIAL SPACE OR MORE CONSUMER? WHERE ARE YOU SEEING THAT ACTIVITY? MATTHEW: ALL OF THE ABOVE, REALLY. WHERE IT IS NOT IS THERE IS AN INDIGESTION A FACT ON TRADITIONAL SOFTWARE BUSINESSES. BECAUSE THERE IS A QUESTION ON ARTIFICIAL INTELLIGENCE DISRUPTION AND HOW DEEP THAT WILL GO, CLEARLY, THERE ARE ALSO MANY BUSINESSES WE BELIEVE ARE ENABLED BY AI. IT'S A QUESTION OF WHERE DO INVESTORS WANT TO SEE ASSETS? THEY MAY ALREADY HAVE EXPOSURE CONCENTRATIONS ELSEWHERE IN THOSE SECTORS. THEY LIKE TO SEE ASSETS IN FOOD AND BEVERAGE, LANDSCAPING BUSINESSES. THESE ARE BASIC BUSINESSES THAT EVERYDAY AMERICANS TOUCH AND FILL. YET WE BELIEVE IF WE CAN FIND THEM AND STRUCTURAL THEM -- STRUCTURE THEM APPROPRIATELY, IT CREATES A MORE COMPLEMENT RAY PORTFOLIO. THAT REALLY IS THE KEY FOR MANY OF OUR INVESTORS WHO ARE LOOKING AT THE MIDDLE-MARKET DIRECT LENDING SPACE. KATIE: BACK TO THE PRIVATE CREDIT LANDSCAPE MORE BROADLY, WE OPENED THIS CONVERSATION TALKING ABOUT CERTAIN VEHICLES THAT GET CAUGHT UP WHEN IT COMES TO THOSE RETAIL REDEMPTIONS WE SAW TOWARDS THE FIRST HALF OF THE YEAR. THERE IS A REALLY INTERESTING STORY ON THE TERMINAL TODAY THAT PRIVATE CREDIT IS TRYING TO GET AWAY FROM THE TERM SEMILIQUID. WHEN YOU THINK ABOUT THOSE FUND STRUCTURES WHERE WE SAW THE HEAVIEST OUTFLOW REQUESTS FROM. I WONDER WHAT YOU MAKE OF THE TERM OVERALL AND SOME OF THE NAMES AND ADJECTIVES THAT HAVE BEEN APPLIED TO THESE FUND VEHICLES THAT HAVE BEEN MORE MARKETED TOWARDS THAT RETAIL CROWD. MATTHEW: THAT IS A GOOD POINT BECAUSE THE UNDERLYING ASSETS ARE NOT SEMILIQUID, THEY ARE ILLIQUID. THAT IS SOMETHING THAT WE IN THE INDUSTRY NEED TO CONTINUE TO MAKE CLEAR FOR THE INVESTORS. YOU ARE TRADING LIQUIDITY FOR EXCESS RETURN. THE MANAGER CAN APPLY THEIR OWN EMPHASIS ON HOW THEY MONETIZE THAT EXCESS RETURN. FROM A PORTFOLIO AND PRODUCT STANDPOINT, I THINK WHAT YOU HAVE TO DO IS MAKE SURE THE INVESTOR UNDERSTANDS HOW TO GET REDEMPTIONS OVER TIME AND EMPHASIZING THE POINT OF OVERTIME IN THE MECHANICAL DELIVERY OF THAT BECAUSE YOU LOSE THE EXCESS VALUE IF YOU TRY TO MAKE THE REDEMPTION QUICKLY. THAT IS PART OF THE PRODUCT DESIGN. WE THINK THAT IS A FEATURE, NOT A BUG. AND WE THINK THAT IS VERY IMPORTANT. WHETHER THAT HAS A CONNOTATION OF SEMI LIQUID IN THE INVESTOR'S MINDS, MAYBE THAT MEANS YOU HAVE A STRUCTURED WAY OF GETTING INVESTMENTS OVER TIME. THERE IS THE ABILITY TO DO THAT, BUT IN ANY ONE QUARTER OR PERIOD, IT MAY BE HARD TO DO THAT AT A VALUE THAT YOU THINK IS OPTIMAL AND THAT IS WHERE THE REDEMPTION COMES INTO PLAY. BAILEY: ALWAYS A GREAT TIME TO CONNECT. THANK YOU SO MUCH, MATT HARVEY, HEAD OF DIRECT LENDING AT PGIM. COMING UP, AMERICAN AIRLINES HITTING SOME TURBULENCE TODAY AFTER SLASHING ITS OUTLOOK. THE STOCK DOWN MORE THAN 8%. WE WILL BREAK DOWN THE MOVE IN TODAY'S STOCK OF THE HOUR. THIS IS THE CLOSE ON BLOOMBERG. BAILEY: SHARES OF AMERICAN AIRLINES DOWN 8%, THEIR BIGGEST DROP SINCE THEY REPORTED EARNINGS THIS TIME LAST YEAR. BUT DOES COME AFTER THE AIRLINE NOW IS FORECASTING NEGATIVE EARNINGS-PER-SHARE IN THE THIRD QUARTER THANKS TO HIGHER FUEL COSTS. HERE TO BREAK IT DOWN FOR US IS SHREE TAYLOR. IS THIS AN EXAMPLE OF A COMPANY HIDING BEHIND THE WAR AND VOLATILITY AROUND OIL? >> AMERICAN AIRLINES HAS BEEN STRUGGLING WITH BEING PROFITABLE FOR A LITTLE BIT. IT HAS BEEN BREAKING EVEN FOR A COUPLE OF YEARS NOW. IT IS TRYING TO GET AHEAD WITH ITS PREMIUM REVENUE AND PAD UP ALL THE LOSS IT HAS SEEN FROM THE HIGHER FUEL EXPENDITURES. BUT IT IS NOT GETTING THERE AND THAT IS WHY WE ARE SEEING THE GUIDANCE EVEN LOWER FOR A SECOND TIME THIS YEAR. KATIE: BAILEY ASKED THE RIGHT QUESTION, WHICH IS, ARE THEY USING OIL PRICES, ENERGY PRICES AS AN EXCUSE? YOU THINK OF SOME OF THE DIVISION AMERICAN AIRLINES HAS HAD WITH ITS PILOTS, FLIGHT ATTENDANTS, AS YOU REPORTED EARLIER THIS YEAR, BLAMING THE CEO AND MANAGEMENT FOR WHAT THEY SEE AS MISSTEPS. SRI: IT IS DEFINITELY A GOOD DISTRACTION. I THINK AMERICAN HAS HAD A SPATE OF ISSUES BUT YOU SAID -- LIKE YOU SAID, ISSUES WITH THE PILOTS AND FLIGHT ATTENDANTS AND A STRATEGY MISSTEPS AND JUST KIND OF BEING LATE TO THE PREMIUM GAME, LIKE WAY FAR BEHIND. DELTA, UNITED, EVEN SOUTHWEST WHO IS JUST A BIT AHEAD OF THEM IN INNOVATION. THIS IS KIND OF A GOOD DISTRACTION TO BE LIKE, OK, THIS IS A SETBACK, EVERYONE ELSE IS STRUGGLING, BUT AMERICAN EVEN AND A PRETTY DECENT FUEL COST ENVIRONMENT HAS A LOT OF WORK TO DO. BAILEY: LOOKING AT THE SHARE PERFORMANCE, AMERICAN DOWN 11% YEAR TO DATE ALONGSIDE ALASKA AIR, DOWN 12%. DELTA UP 18% AND UNITED UP MORE THAN 2.5%. WHAT'S NEXT FOR THE AIRLINES GROUP AND IS IT GOING TO BE THE TALE OF TALKING ABOUT THE IRAN WAR? OR WILL WE SEE OTHER COMPANIES TALKING UP THE DEMAND? SRI: WE HAVE BEEN THROUGH ALL THE NETWORK CARRIERS, SO WE HAVE THOSE LOWER-COST CARRIERS. FRONT TIER, JETBLUE, MORE OF A VALUE CARRIER, AND ALLEGIANT. WE SAW SPIRIT'S DEMISE EARLIER THIS YEAR AND WE WILL SEE HOW THOSE LOWER-COST CARRIERS WERE HIT AND WHAT KIND OF ENVIRONMENT IS THIS FOR THEM. AS FOR THE NETWORK CARRIERS, THIS SECOND HALF IS MORE, OK, HOW LONG CAN THIS STRONG DEMAND FOR PREMIUM TRAVEL KEEP YOU AFLOAT? WE'VE SEEN FUEL COSTS GO UP AND DOWN JUST IN THE PAST THREE WEEKS. YOU CAN'T REALLY PREDICT THE SECOND HALF. I THINK WALL STREET WAS PRETTY FRUSTRATED WITH EITHER THEY ARE REAFFIRMING DIED AND'S OR BRINGING IT DOWN. KATIE: ABSOLUTELY. AMERICAN AIRLINES SHARES CURRENTLY DOWN ABOUT 7.9%. APPRECIATE YOUR REPORTINGSRI TAYLOR, AMERICAN IRON'S REPORTER FOR BLOOMBERG NEWS. WE ARE IN SELLOFF MODE AND THEN SOME. THE S&P 500 DOWN ABOUT 1.5%. WE KNOW WHO TO BLAME, IT IS BIG TECH. BAILEY: WE ARE ALSO LOOKING AT A MARKET WHERE THE SEMICONDUCTOR INDEX IS DOWN MORE THAN 1.4%. SO YOU ARE LOOKING AT WEAKNESS FROM THE COMPANIES THAT SHOULD BE BENEFITING FROM MORE SPENDING. KATIE: YOU ARE NOT SEEING THAT IN THE SHARE PERFORMANCE. WE WILL PUT IT ALL TOGETHER NEXEN DRIVE YOU TO THE CLOSING BELL WITH THE HEAD OF EQUITIES OVER AT ALLIANCEBERNSTEIN. THAT CONVERSATION COMING UP AFTER THE BREAK. THIS IS "THE CLOSE" ON BLOOMBERG. ♪ KATIE: LESS THAN 10 MINUTES TO GET -- TO GO UNTIL THE CLOSING BELLS RING. BAILEY: ENDING THE DAY ON A SOUR NOTE, S&P DOWN CLOSE TO 1.5%. IT REALLY SEEMS LIKE A SELLOFF ACROSS THE BOARD FOR U.S. EQUITIES. KATIE: ABSOLUTELY. THE S&P 500, YOU HAVE MORE THAN 300 NAMES IN THE RED. AS EVIDENCED BY THE NASDAQ 100, A LOT OF THOSE NAMES FALL INTO THE TECH BUCKET. TESLA ALPHABET AMAZON, NVIDIA MICROSOFT. SOME OF THE BIGGEST WINS ON THE INDEX RIGHT NOW. IT DOESN'T HELP SENTIMENT MATTERS, YOU LOOK AT THE LOAN GREEN SPOT, BRENT IS HIGHER. BAILEY: I THOUGHT AFTER THE OIL WAS -- AFTER THE AWARD WAS -- AFTER THE WAR WAS OVER IT WOULD GO BACK DOWN. KATIE: INTERESTING TO THINK WE ARE BACK TO $100 A BARREL ON BRENT. A LOT OF JITTERS THROUGH THE BOND MARKET. YOU CAN SEE THAT IN THE 10-YEAR TREASURY YIELD, HIGHER BY ABOUT FIVE BASIS POINTS RIGHT NOW, TOWING THE LINE FOR 70 OR SO. LET'S BRING IN NELSON YU, HEAD OF EQUITIES OVER AT ALLIANCEBERNSTEIN. GREAT TO HAVE YOU ON SET WITH US. THERE'S A LOT TO GET INTO HERE AM A BUT WE HAVE TO START WITH TECH BECAUSE WE HEARD FROM ALPHABET AND TESLA AND REALLY ACROSS THE BOARD IT'S THIS FOCUS ON AI SPEND. THE QUESTION WE'VE BEEN ASKING FOR OVER A YEAR NOW, WHEN ARE WE GOING TO SEE THE RETURN SET JUSTIFY THE SPEND THAT WE ARE SEEING? JUST TAKING A LOOK AT THE MARKET REACTION TODAY, DOESN'T LOOK LIKE THAT QUESTION HAS BEEN ANSWERED YET? NELSON: IT'S THE TO TRILLION DOLLAR QUESTION OVERHANGING THE MARKET. TODAY THE MARKET ACTION IS JUST A MICROCOSM OF WHAT WE'VE BEEN GOING THROUGH ALL YOUR. IT REALLY IS A ONE-DIMENSIONAL MARKET IN TERMS OF IS AI GOING TO WORK OR NOT GOING TO WORK? THAT REALLY HAS INVESTORS QUITE PARALYZED IN TERMS OF WHAT TO DO FROM HERE. KATIE: IT SEEMS LIKE AN ISSUE OF TIMELINES TOO. I FEEL LIKE YOU ASKED MOST PEOPLE ABOUT AI AND A LOT OF FOLKS WOULD AGREE THAT IT'S GOING TO BE TRANSFORMATIVE, WHO KNOWS IF THAT IS NEXT YEAR, AND FIVE YEARS OR 10 YEARS? THE LIST GOES ON. AS AN INVESTOR, HOW DO YOU APPROACH THAT QUESTION? HOW DO YOU APPROACH MARKETS AT THIS JUNCTURE WHERE YOU ARE HAVING THE SERGEANT AND EXISTENTIAL QUESTIONS BEING ASKED? NELSON: A LENS WE HAVE TO LOOK AT IS THAT QUALITY LENS. QUALITY, WE BEEN TALKING ABOUT IT ALL YEAR IN TERMS OF HOW MUCH QUALITY HAS UNDERPERFORMED AS AN INVESTMENT STYLE. IF YOU THINK ABOUT THE DEFINITION OF QUALITY, IT REALLY IS THE FUNDAMENTAL PIECE OF HOW WE HAVE TO LOOK AT THE MARKET TODAY. THE DEFINITION IS REALLY ABOUT COMPANIES BEING ABLE TO DURABLY EARN RETURNS ABOVE THEIR WEIGHTED AVERAGE COST AND CAPITAL. THAT'S REALLY IMPORTANT TODAY BECAUSE THE COST OF CAPITAL IS HIGHER. BUT THE QUESTION ABOUT WHETHER THEY CAN AFFORD THOSE RETURNS, YOU GOT CAPEX NUMBERS THAT HAVE BEEN GROWING AT 75% FOR THREE YEARS NOW AMONG THE HYPER-SCALERS. WE ARE SEEING THAT GROW START TO PETER OUT, NEXT YEAR WERE FORECASTING ABOUT 40% GROWTH, DESPITE WHAT WE SAW FROM ALPHABET YESTERDAY. AND THE NEXT YEAR AFTER THAT WE ARE SEEING ABOUT 20% GROWTH. BUT THAT IS STILL GROWING. THE BIG QUESTION IS REALLY WHO CAN GENERATE THAT ROI, AND REALLY IT'S A QUESTION OF WHO'S GOING TO GO FIRST. BAILEY: IT SEEMED LIKE IT WAS A MARKET THAT WAS GOING TO BE PREDICATED ON HYPER-SCALERS STILL SPENDING. YOU'RE COMING OUT SAY GOING TO KEEP SPENDING AND THE MARKET PULLS BACK, SEMICONDUCTORS ARE UNDER PRESSURE. IS THAT DRIVEN BY SOME OF THE MACRO THE MATTIX OR IS IT A? NUMBER OF THINGS? NELSON: ONE OF THE MOST TROUBLING THINGS ABOUT THAT $205 BILLION INCREMENTAL SPEND IS ACTUALLY WHY THAT SPENDING INCREASED. IT INCREASED BECAUSE MEMORY PRICES ARE UP. IF I THINK ABOUT ONE QUARTER AGO WHEN MICROSOFT ANNOUNCED AN INCREMENTAL INCREASE OF CAPEX, $20 BILLION OF THAT WAS JUST BECAUSE MEMORY PRICES WERE HIGHER. THEY ARE NOT PRODUCING ANYTHING MORE. THEY ARE JUST TRYING TO KEEP PACE. BAILEY: IS IT CONCERNING THAT THE STOCKS INDEX HAS MOVED LESS THAN 1% ONLY AUTO TIME SINCE THE START OF JUNE? NELSON: IT CERTAINLY TELLS YOU HOW CROWDED THE SPACE IS. I THINK ACTUALLY, TO YOUR QUESTION EARLIER, HOW DOES AN INVESTOR INVEST IN AREAS LIKE THIS? AT THIS POINT IT IS TWO-VOLUME -- TWO VOLATILE. THIS IS NOT WHERE YOU WANT TO SPEND MOST OF YOUR RISK BUDGET. WE WANT TO BE SPENDING YOUR RISK BUDGET IS ACTUALLY WHAT THE MARKET IS PROVIDING. THE MARKET IS BROADENING. IF YOU LOOK THROUGHOUT THE COURSE OF THE YEAR OF WHAT WE'VE SEEN IS SIGNIFICANT EARNINGS VISIONS. THE BREATH OF EARNINGS REVISIONS WE'VE SEEN THIS YEAR IS THE HIGHEST WE'VE EVER SEEN IN THE LAST COUPLE OF DECADES. 80% OF THE RETURNS IS STILL DRIVEN BY SEMIS AND TECHNOLOGY. THE OPPORTUNITIES ARE OPENING UP. THE MARKET JUST HASN'T PAID ATTENTION YET. KATIE: I WANT TO GO A LITTLE BIT CROSS ASSET. YOU ARE HEAD OF EQUITIES AT ALLIANCEBERNSTEIN AND IT FEELS LIKE, YOU ARE TALKING 81-DIMENSIONAL EQUITY MARKET, MARCHING TO ITS OWN DRUM. THAT DRUM IS AI. THEN YOU THINK ABOUT WHAT'S HAPPENING IN ENERGY MARKETS, PARTICULARLY TODAY, AND WHAT'S HAPPENING IN BOND MARKETS. KIND OF FEELS DIVORCED FROM EACH OTHER. I'M WONDERING IN YOUR SEAT, WHAT SORT OF SIGNALS YOU'RE TAKING FROM FIXED INCOME AS WE START TO SEE YIELDS GET TO THE HIGHEST LEVELS IN YEARS HERE? NELSON: I TALKED TO MY FIXED INCOME COLLEAGUES QUITE OFTEN AND REALLY GET THEIR PERSPECTIVES IN TERMS OF WHERE THEY THINK YIELDS ARE GOING. GENERALLY WE ARE PRETTY CONSTRUCTIVE ON YIELDS. WE THINK INFLATION HAS BEEN COMING DOWN, IF YOU LOOK AT THE LABOR MARKETS, WE ARE NOT OUT OF CONTROL. IF ANYTHING THE MARKET IS WEAKENING. THE DIRECTION OF TRAVEL WE STILL THINK IS THAT RATES CAN COME DOWN FROM HERE. AT LEAST THERE IS NO RATIONALE FOR RAISING RATES MUCH HIGHER. THAT BEING SAID, I THINK THE COST OF CAPITAL IS HIGHER FOR THE LONGER NARRATIVE THAT'S BEEN IN THE MARKET. THAT IS STILL SOMETHING EQUITY INVESTORS HAVE TO BE THINKING ABOUT. THAT'S WHY GO BACK TO THIS QUALITY LENS IN TERMS OF UNDERSTANDING THAT THIS IS A FORCE THAT WE HAVEN'T HAD TO CONSIDER FOR THE LAST DECADE. THIS IS WHY WHAT WE NEED TO DO IS LOOK MORE BROADLY IN TERMS OF WHAT'S GOING TO PROVIDE THAT QUALITY. I THINK THE DEFINITION OF QUALITY REMAINS THE SAME BUT WHERE WE ARE LOOKING FOR QUALITY NOW HAS CHANGED. WE ARE SEEING MORE QUALITY ENDURABLE TYPES OF PROFITABILITY AND WHAT I CALL PRODUCTIVITY ENABLERS. THAT'S INDUSTRIAL AUTOMATION, SPECIALIZED MANUFACTURING, HEALTH CARE, EVEN CAPITAL MARKETS. KATIE: NELSON, WE APPRECIATE YOU STOPPING OF THE STUDIO FOR US. NELSON YU, HEAD OF EQUITIES OVER AT ALLIANCEBERNSTEIN, AS WE COUNT DOWN TO THAT CLOSE. COMING UP SHORTLY AFTER THE BELL , INTEL RESULTS, THE NEXT BIG LITMUS TEST FOR THIS MARKET. BAILEY: AND LOOKING AT THE OPTIONS MARKET, A DECLINE OF 12%. BUCKLE UP. KATIE: IT'S GOING TO BE FUN AND WE WILL WALK YOU THROUGH ALL THE HEADLINES AS WE GET THEM WITH OUR GLOBAL SIMULCAST COME WITH THAT RADIO PRINTS. IT STARTS RIGHT NOW. >> THE CLOSING BELL, BLOOMBERG'S COMPREHENSIVE CROSS-PLATFORM COVERAGE OF THE U.S. MARKET CLOSE, STARTS RIGHT NOW. ABOUT TWO MINUTES AWAY FROM THE END OF THE TRADING DAY. KATIE GREIFELD, BAILEY IS IN FORT ROMAINE BOSTICK. IT'S A GLOBAL SIMULCAST, WERE JOINED BY CAROL MASSAR AND TIM STENOVEC. WE BRING TOGETHER ALL OF OUR VARIOUS AUDIENCES, AND A PRETTY BIG SELLOFF TODAY. WE HEARD FROM ALPHABET AND TESLA AND IBM AFTER THE BELL LAST NIGHT. CAROL COLE IT MAKES YOU WONDER WHAT INTEL IS GOING TO DELIVER IN JUST A FEW MINUTES. MOST OF THE NAMES ARE DOWN AND WE WILL SEE WHAT WE GET FROM INTEL IN TERMS OF WHAT IT HAS TO SAY ABOUT ITS OUTLOOK AND ANY AI COMMENTARY. THAT STOCK IS DOWN ABOUT 2.3% HEADING INTO EARNINGS TODAY. TIM: HALF I WOULD SAY IS WHAT'S HAPPENING WHEN IT COMES TO OIL PRICES AND CONCERNS ABOUT INFLATIONARY PRESSURES. YOU GOT BRENT ABOVE $100 A BARREL AT ONE POINT TODAY, NOW JUST BELOW IT. UP ANOTHER 6% TODAY AND DEBBIE TO YOU, THE DUMBEST BENCHMARK ALSO UP. BAILEY: IT FEELS LIKE A MARKET AT THE LAST THING THEY NEEDED AFTER THE PRINTS WE SAW YESTERDAY EVENING WAS OIL CONTINUING TO RIP HIGHER. IT DOES SEEM LIKE YOU'RE GETTING HIT FROM BOTH SIDES IF YOU AREN'T EQUITY INVESTOR. KATIE: REALLY NOWHERE TO HIDE BECAUSE YOU THINK ABOUT THE SELLAFIELD WHEN IT COMES TO THE BOND MARKET, YIELDS HIGHER ACROSS OCCUR. LEVELS WE HAVE NOT SEEN SINCE JANUARY 2025 WHEN IT COMES TO THE 10-YEAR TREASURY YIELD. NOT MUCH IN THE WAYNOT MUCH IN A WAY OF HAVENS RIGHT NOW. LET'S TAKE A LOOK. HOW WE ARE FINISHING THE DAY WHEN IT COMES TO THE EQUITY MARKET ON THIS THURSDAY. THE S&P 500 FINISHES OFF THE LOWS, BUT THAT'S NOT SAYING MUCH, STILL DOWN 1.2%. MOST OF THE PAIN WAS FELT WHEN IT COMES TO BIG TECH AND THE NASDAQ, DOWN 2.2%. THE DOW JONES IS YOUR RELATIVE OUTPERFORMER FOR THE PRICE WEIGHTED INDEX, LOWER BY 1% OR SO. SMALL CAPS AS WELL, CAROL, ON THE DAY. KATIE: WARMS MY HEART WHEN YOU TALK ABOUT THE DAY. -- THE DOW. S&P 500 290 TO THE DOWNSIDE. KATIE: BAD BREATH ACROSS THE BOARD IF YOU ARE LOOKING FOR GAINS. INDUSTRIALS WAS YOUR OUTPERFORMER FOR THE DAY, 1.8% HIGHER. HEALTH CARE, HIGHER AS WELL. FOUR SECTORS IN THE GRID. IN TERMS OF WHAT DIDN'T DO HOT TODAY, NO SURPRISE, COMMUNICATION SERVICES AND CONSUMER STAPLES, WITH BIG TECH REALLY WEIGHING DOWN THE MARKET. CAROL: AS WE WAIT FOR INTEL EARNINGS, WE'VE GOT TO TALK ABOUT THE DEFENSE AREA WHERE WE SAW SOME OUTPERFORMANCE IN THOSE NAMES. LOCKHEED MARTIN, SHARES ARE UP THE MOST SINCE 2001. LET'S GO TO INTEL. KATIE: HERE'S THE RED HEADLINE ON THE BLOOMBERG TERMINAL, THIRD QUARTER LOOK AHEAD FOR REVENUE. BETWEEN 15.8 BILLION DOLLARS TO $16.8 BILLION. THAT IS ABOVE THE ESTIMATE OF ABOUT $15.06 BILLION. HELPFULLY AHEAD OF THOSE ESTIMATES THERE WHEN IT COMES TO THE SECOND QUARTER. SECOND QUARTER REVENUE CAME IN AT 16.1 BILLION, WELL ABOVE THE ESTIMATE OF 14.4 3 BILLION. YOU ARE SEEING BEATS ACROSS THE BOARD WHEN IT COMES TO SECOND-QUARTER ADJUSTED EPS. $.42 IS DOUBLE THE ESTIMATE OF $.21. HE BEATEN RAISED QUARTER FROM INTEL, TAKE A LOOK AT THE SHARES NOW. CAROL: INVESTORS HAVE BEEN EXPECTING A LOT. THE SOCKET BEEN DOWN 30%, MAKING IT AMONG ONE OF THE 10 WORST PERFORMERS IN THE S&P 500. IT IS STILL UP 171% TODAY. WE HEARD THE PRESIDENT MAKING COMMENTS ABOUT THE INVESTMENT IN INTEL LATER TODAY. COMPANY CAPEX INCREASING MAINLY FOR 2026 AND 2027. THE CEO SPOKE IN AN INTERVIEW. OUR BLOOMBERG TEAM IS ON IT. DEMAND OUTRUNNING SUPPLY, SINK PRODUCTION IMPROVING QUICKLY. TIM, INVESTORS SEEM IMPRESSED RIGHT NOW, STOCK UP ALMOST 4% IN THE AFTERMARKET. TIM: MORE COMMENTS COMING FROM THE CEO SAYING THAT GUY IS DRIVING UNPRECEDENTED DEMAND FOR COMPUTE. INTEL AS WELL IS POSITIONED TO CAPTURE SUSTAINABLE GROWTH ACROSS THE CPU FRANCHISE, ADVANCED PACKAGING, FOUNDRY NETWORKS. HE SAYS THESE RESULTS ARE THE STRONGEST IN 15 YEARS ENABLED BY GREATER SPEED, ACCOUNTABILITY, AND CUSTOMER FOCUS. SHARES OF INTEL ARE UP CLOSE TO 5% IN THE AFTER HOURS, WITH A FOUNDRY BUSINESS UP WITH MULTI-ENGAGEMENTS IN PRODUCTION IMPROVING QUICKLY. BAILEY: WE SAW OPTIONS IMPLYING A MOVE OF 12%, NO 6.5% RALLY POST MARKET, IT WILL BE INTERESTING TO SEE IF THEY MAINTAIN OR EXTEND GAINS AS MANAGEMENT GETS ON THE CALL. AGAIN, TO CAROL'S POINT, THE STOCK IS DOWN BY 30%, BUT STILL GETTING WELL NORTH OF 150% YEAR TO DATE. KATIE: LOOKING AT THE LONG-TERM CHART, IT'S AMAZING OVER THE LAST FIVE YEARS WATCHING IT TAKE OFF LIKE A ROCKET AND IT'S A REALLY INTERESTING STORY BECAUSE WE KNOW THE U.S. HAS INVENTED OR INVESTED IN INTEL AND WE KNOW THAT THAT IS A BIG PIECE OF THEIR TURNAROUND STORY, BUT IT IS A TURNAROUND STORY THEY APPEAR TO BE EXECUTING AS, CAROL, YOU MENTIONED, DEMAND IS OUTPACING SUPPLY. THAT IS A GOOD PROBLEM TO HAVE. CAROL: I'M LOOKING AT IAN KING'S REPORTING AS WE SPEAK, THE STORY FROM "THE BLOOMBERG," INCREASING GAINS WITH DATA CENTER CUSTOMERS , LOOKING TO SATISFY DEMAND FOR AI COMPUTING WITH SALES SOARING 59% IN THE LAST QUARTER, THANK YOU IAN KING, DOUBLE THE PACE OF THE NORMAL INTEL REVENUE. KEEP IN MIND THAT THE CEO TOOK THE REINS LAST YEAR OR SO, LOOKING TO POSITION INTEL AS A KEY BENEFICIARY OF AI SPENDING. WE KNOW THEY'VE BEEN WORKING ON IT A LOT AND GOT A BIG BOOST FROM AI INVESTMENT AND IT LOOKS LIKE SOME OF THE EFFORTS ARE PAYING OFF. BAILEY: KEEPING OUR EYE ON THE TICKER, SEEMS LIKE THE WORST FEARS ARE OFF THE TABLE, INVESTORS MAY BE DIPPING THEIR TOE BACK INTO THESE SEMICONDUCTOR SOCKS, BUT TIM, THIS HAS BEEN A MARKET WHERE IT'S UP 5% ONE DAY AND DOWN THE NEXT. IT WILL BE INTERESTING TO SEE WHAT HAPPENS TOMORROW AND THROUGHOUT EARNINGS SEASON. TIM: SHARES ARE UP RIGHT NOW BY 8.5 PERCENT, BOUNCING AROUND A BIT WITH PRODUCTION IMPROVING QUICKLY. THE COMPANY CFO SAYS THERE ARE PLANS TO RAISE CAPEX TO 20 BILLION FOR 2026. LIP-BU TAN IN AN INTERVIEW SAYING DEMAND IS OUTRUNNING SUPPLY AND THAT INTEL IS INCREASING, EXCUSE ME, CAPEX SPENDING 26 AND 27, INCREASING MAINLY ON EQUIPMENT. KATIE: WE WILL CONTINUE TO TRACK THIS AS IT BUILDS MOMENTUM IN THE AFTERMARKET. INTEL SHARES ARE UP 9.5 PERCENT WITH INVESTORS AND CERTAINLY LIKING WHAT THEY GOT. THAT'S A WRAP. WE WILL CONTINUE ON BLOOMBERG ORIGINALS, KATIE AND BAILEY ON TV, TIM AND I ON RADIO. SEE YOU AGAIN SAME TIME, SAME PLACE TOMORROW. KATIE: COMING UP, WE DIG DEEPER INTO THE INTEL EARNINGS AND WHAT IT MEANS FOR THE BROADER CHIP TRADE WITH JAY GOLDBERG. THIS IS "THE CLOSE," ON BLOOMBERG. ♪ >> THE COUNTDOWN IS ON. EVERYTHING YOU NEED TO GET THE EDGE AT THE END OF THE MARKET DAY. THIS IS "THE CLOSE." KATIE: WELCOME BACK. BAILEY: ENDING ANOTHER DAY IN THE RED. LET'S TAKE A LOOK AT WHAT HAPPENED WITH MARKETS AFTER THE BELL. S&P 500, KATIE, DOWN MORE THAN 1%. BIG DRAG, BIG TECH, NASDAQ 100 IS DOWN. THE PHILADELPHIA SEMICONDUCTOR INDEX, ENDING THE DAY DOWN .5% BEFORE INTEL CRUSHED EARNINGS. BACK BELOW $100 PER BARREL ON BRENT CRUDE, BUT WE HAVE BEEN SITTING WITH THAT NUMBER FOR QUITE SOME TIME. BAILEY: ABSOLUTELY. KATIE: POST MARKET MOMENTUM BUILDING HIGHER, THAT AFTER THE FORECAST SHATTERED ESTIMATES FUELED BY WHAT WE ARE SEEING WHEN IT COMES TO DATA CENTER NUMBERS THAT INTEL IS POSTING THERE. GOING UP 59% LAST QUARTER. LET'S GET RIGHT TO IT WITH ED LUDLOW, WHO JOIN -- JOINS US LIVE ON THE HEELS OF THE CONVERSATION HE JUST HAD WITH THE INTEL CEO. TALK TO US ABOUT THIS A BIT. I KNOW THAT HE SAID THEY HAVE DEMAND OUTSTRIPPING SUPPLY AND THAT'S A PRETTY GOOD PROBLEM TO HAVE. ED: THE DISTINCTION BEING THAT LAST QUARTER THEY LEFT A LOT OF MONEY ON THE TABLE BECAUSE THEY COULD NOT GET CPUS INTO THE HANDS OF CUSTOMERS. DEMAND SEEMS TO BE GOING FASTER THAN SUPPLY, AND THAT MASSIVE OUTPERFORMANCE OF THE LOW END OF THE SALES QUARTER WILL BE BEATING CONSENSUS. THE MARKET IS A SITUATION THERE CPUS SPECIFICALLY IS TAKING OFF AT INTEL WITH A LOT OF THEIR TOPLINE PERFORMANCE ANSWERED BY THAT. GOING THAT'S GREAT, 59%, DOUBLE WHAT THE REST OF THE BUSINESS IS GROWING. THEY HAVE FOUND THEIR PLACE IN THE MARKET BUT THEY ARE IN BATTLE TO IMPROVE THEIR OWN OPERATIONS, PROCESSES, SO THEY CAN GET THE PRODUCT PEOPLE ACTUALLY WANT OUT THERE INTO THE REAL WORLD. KATIE: IT'S A GOOD POINT, I HAVE A PROBLEM, A CHAMPAGNE PROBLEM FOR NOW, BUT IT COULD QUICKLY TURN INTO A DIFFERENT SITUATION HERE. TALK TO US A BIT ABOUT WHAT WE ARE SEEING WHEN IT COMES TO CAPEX, LASER FOCUS FOR INVESTORS WHEN IT COMES TO BIG TECH. WHAT DID WE HEAR FROM INTEL? ED: THEY WILL BE RELEASING THE GUIDE FOR 2026. RIGHT NOW IT'S 18 BILLION BUT THEY COULD GO UP TO 20 BILLION AND THEY WILL COMMUNICATE THE SPECIFICS OF THAT ON THE CALL. GENERALLY THEY DON'T OFTEN GIVE THOSE NUMBERS A YEAR IN ADVANCE BUT IN 2027 IT WILL BE MEANINGFULLY HIGHER THAN IT IS FORECAST TO BE IN 2026. THE MAIN POINT IS THAT LIP-BU TAN IS CAUTIOUS TO DEPLOY CAPITAL AND WANTS TO BE CERTAIN OF THE RETURN ON THE CAPEX. BUT THEY HAVE A LOT OF INGREDIENTS THAT EXTEND INTO THE FOUNDRY BUSINESS AND HAVE A GOOD SENSE OF WHAT THE DEMAND IS, SO THEY ARE WILLING TO -- WILLING TO DEPLOY CAPEX FOR CAPACITY, PUSHING IT INTO WHAT THEY CALL SPACE. THEY WILL UPGRADE AND ADD TO THE TOOLING. IT'S STILL A BULLISH SIGNAL ON THE DIRECTION OF TRAVEL IN THE SEMICONDUCTOR SPACE. BAILEY: A COUPLE OF DAYS AGO WE HAD REPORTS THAT THEY WERE PLANNING LAYOFFS IN THE DATA CENTER GROUP. THE EARNINGS CALL WILL KICKOFF AT 5:00. DO YOU EXPECT THAT TO BE ADDRESSED? DO WE ANTICIPATE AN UPDATE ON HEADCOUNT? ED: REMIND OURSELVES, DATA CENTER BUSINESS IS HIGHFLYING FOR INTEL. IT'S THE OUTPERFORMANCE. WHY WOULD THEY CUT RULES? THE WAY THAT LIP-BU TAN EXPLAINED IT TO US IS THAT IT'S NORMAL. THEY HAVE QUITE A FEW LEADERS AT THE TOP OF THE ORGANIZATION THAT LIP-BU TAN HAS PUT IN PLACE. THEY HAVE DONE REVIEWS OF EACH BUSINESS LINE. THEY CUT VARIOUS ROLES FOR THE SAKE OF IMPROVEMENT AND MADE A GOOD POINT, TRIED TO HIRE AS COMPETITIVELY AS POSSIBLE. INCREASINGLY FOCUSED ON THE VETERANS OF THE INDUSTRY. THEN, IT'S NOT CORRELATED. THEY ARE TRYING TO IMPROVE IT FOR EFFICIENCY AND REDUCING THE WORKFORCE AS A PART OF THE STRATEGY. BAILEY: QUICK QUESTION, HERE, IS THIS THE EARNINGS RESULTS THAT THE ENTIRE INDUSTRY NEEDED TO SEE? ED: WE NOTE -- WE KNOW THE STORIES. IT'S WHY INTEL IS DOING WELL. ON THE CHIP SIDE IF YOU ARE BILLING A LOT OF NEW CAPACITY AROUND THE WORLD, YOU NEED NEW EQUIPMENT. IF TSMC TELLS YOU THAT THIS IS OUR PICTURE, ALL OF THE CHIPMAKERS WILL FOLLOW IN THOSE COATTAILS AND IT'S COMPLETELY NON-SURPRISING RESPECT. KATIE: ED, REALLY APPRECIATE YOUR REPORTING. I WAS ED LUDLOW BREAKING DOWN HIS CONVERSATION WITH LIP-BU TAN . LET'S DIG INTO THE EARNINGS WITH JAY GOLDBERG, SENIOR ANALYST OVER AT SEAPORT RESEARCH PARTNERS. GREAT TO HAVE YOU WITH US. PICKING UP ON THE CONVERSATION WE WERE HAVING WITH ED, THINKING ABOUT THAT SUPPLY DEMAND IMBALANCE RIGHT NOW FOR INTEL, IT IS SOMETHING THAT THE COMPANY IS PRETTY HAPPY WITH. THEY HAVE MORE DEMAND THAN SUPPLY. WHEN DO YOU THINK THAT SORT OF EQUALIZES HERE? DO YOU SEE ANY EVIDENCE THAT THAT COULD HAPPEN IN THE QUARTERS TO COME? >> I THINK THEY'RE TRACKING WELL FOR THAT. LAST QUARTER THEY INDICATED IT SHOULD CLEAR UP BY THE END OF THE YEAR AND I THINK THEY'RE MORE THAN ON TRACK TO DO THAT. AND I THINK THERE'S POSITIVE SIGNALS FOR WHAT THAT MEANS FOR NEXT YEAR, THEY CAN FULLY CAPTURE ALL THE DEMAND THAT'S OUT THERE FOR THEM. AT THE RISK OF LEAVING MONEY ON THE TABLE, WHO ARE INTEL'S COMPETITORS HERE? WHEN YOU THINK ABOUT THE CURRENT LANDSCAPE, WHO IS THEIR BIGGEST WORRY AT THIS POINT? >> I THINK THE BIGGEST COMPETITOR IS AMD. I'M AT AN AMD EVENT TODAY, THEY HAVE A LOT OF TRACTION AS WELL. FOR BOTH OF THEM, THE MARKET IS GROWING STRONGLY, IT'S GROWING FOR EVERYBODY. WE DON'T HAVE TO WORRY TOO MUCH ABOUT MARKET SHARE BECAUSE THE MARKET IS GROWING SO QUICKLY AND THEY'RE SO MUCH DEMAND OUT THERE. BAILEY: WALK US THROUGH THE EXPECTATION, HOW DOES THIS REPORT AND THIS UPDATE FROM INTEL TO GO OVER OR PROVIDE ANOTHER DRIVE HIGHER OR AT LEAST A BOUNCEBACK FOR SOME OF THESE EQUIPMENT COMPANIES? JAY: IS FANTASTIC NEWS FOR THE SEMI CAP SUPPLY CHAIN. GO DOWN THE LIST, THOSE COMPANIES, THEY ONLY HAVE A FEW CUSTOMERS. THERE ARE SEMI-COMPANIES THAT CAN BOTHER MOST ADVANCED TOOLS AND INTEL WAS THE LAGGARD CUSTOMER FOR THE LAST TWO YEARS, NOW YOU HAVE THAT CUSTOMER COMING BACK. ON TOP OF THAT THEY HAVE ALL THE EMORY SUPPLIERS IN THE WORLD BUYING UP AS MUCH EQUIPMENT IS A NEED TO BUILD OUT THEIR NEEDS. BAILEY: GIVEN THE VOLATILITY WE'VE SEEN FOR INTEL, DOWN ABOUT ALMOST 30% FROM ITS PEAK LAST MONTH, HOW MUCH OF THIS RALLY POST MARKET IS DRIVEN BY EITHER SHORT COVERING THE OPTIMISM AROUND THE NEAR TERM AND WHAT THE COMPANY CAN PROVIDE THAT WILL GET THE COMPANY BACK TOWARD THOSE HIGHS AS OPPOSED TO STUCK IN THIS DOWNDRAFT? JAY: I THINK SOME OF WHAT'S GOING ON IN THIS YEAR, IN THE FIRST HALF IT WAS FUNDAMENTALS. IN THE SECOND HALF, COMPANIES THAT HAVE THE FUNDAMENTALS THAT CAN MATCH EXPECTATIONS WILL DO WELL AND THOSE THAT AREN'T WILL BE EXPOSED BY THE MARKET. WHAT WE SEE HERE WITH INTEL AND SOME OF THE OTHERS, THEY HAD A GOOD STORY IN THE NEAR TERM AND YOUR THRONE THAT PEOPLE THAT THINGS -- THINGS THAT PEOPLE GOT EXCITED ABOUT EARLY IN THE YEAR, THOSE ARE STILL ON TRACK. SO YOU HAVE THE NEAR TERM MOMENTUM TO CARRY YOU INTO LONGER-TERM FUNDAMENTALS. KATIE: SPEAKING OF NEAR TERM MOMENTUM, LOOKING A-SHARES AFTER HOURS, HIGHER BY ABOUT 11%. SO QUITE A MOVE WE ARE SEEING HERE. THAT WAS PRICED INTO THE OPTIONS MARKET. WE ARE COUNTING DOWN TO THE CALL WITH EXECUTIVES, THAT KICKS OFF AT 5:00 P.M. OR SO. ON THE HEELS OF THESE NUMBERS WE GOT FROM THE COMPANY, WHAT WILL YOU BE LISTENING OUT FOR WHEN WE ACTUALLY HERE FROM THE C-SUITE ITSELF? JAY: RIGHT NOW I'M MOST INTERESTED IN YOUR TERM CONDITIONS, WHAT CUSTOMERS ARE THEY SELLING INTO AND WHAT IN MARKETS ARE THEY DOING WELL IN? AND MORE BROADLY FOR THE YEAR, HOW WILL GROSS MARGINS TREND DURING THE YEAR? THE COMPANY IS OPERATING AT LOW AVERAGE GROSS MARGINS AGAINST HISTORICAL AVERAGES. I SEE THEM -- ROOM FOR IMPROVEMENT THERE. KATIE: GREAT TO GET SOME TIME WITH YOU, JAY GOLDBERG, SENIOR SEMICONDUCTORS AND ELECTRONICS ANALYST OVER AT SEAPORT RESEARCH PARTNERS. COMING UP, INTEL'S RIPPLE EFFECTS ON THE CHIP SPACE AND HOW THESE RESULTS FACTOR IN. WE WILL SPEAK WITH THE GENERAL MANAGER OF AI AN EDGE OVER AT OMNI FEDERAL ON WHAT SHE SEES AHEAD. THIS IS "THE CLOSE" ON BLOOMBERG. BAILEY: TAKING A LOOK AT INTEL SHARES UP 12%, THAT'S EXACTLY WHAT THE OPTIONS MARKET WAS BAKING IN. THIS COMES AFTER EARNINGS CRUSHED EXPECTATIONS AT THE TOP OF THE HOUR. JOINING US LIVE IS JANA EGGER'S, GENERAL MANAGER OF AI AN EDGE OVER AT OMNI FEDERAL TO HELP. WHEN WE LOOK AT THIS BEAT, THESE EXPECTATIONS, WHAT ARE YOU TAKING AWAY? IS THE SEMI PARTY BACK ON? NOT SOFTWARE, THE SOFTWARE PARTY IS DEAD. JANA: THEY ARE BOTH BACK ON. WE HAVE A LOT TO DO ON OUR SIDE. I LOVE THE FACT THAT IN DALE -- INTEL, THERE IS A BALANCE, IS NOT ONE OR THE OTHER, BUT BOTH. WE HAVE A LOT THAT WE CAN DO AS AN INDUSTRY, LEVERAGING BOTH TYPES OF COMPUTE PLATFORMS. SO I THINK IT IS A PARTY FOR BOTH SOFTWARE AS WELL AS HARDWARE. KATIE: THAT'S A BEAUTIFUL WORLD THAT YOU DESCRIBE. FOR THE PAST SEVERAL MONTHS THAT SORT OF BEEN TREATED AS POLAR OPPOSITES. THAT HAS BEEN THE PAIR TRADE, DEPENDING ON THE DAY. YOU SHORT ONE AND GO LONG THE OTHER. I DO THINK IT'S INTERESTING THAT WE ARE HAVING THIS CONVERSATION NOW. WHAT DO YOU THINK HAS CHANGE RELATIVE TO THE PAST COUPLE OF MONTHS, WHERE IT WAS SEEN AS THAT SORT OF PAIR TRADE? JANA: SOME OF IT YOU'RE SEEING IS THE CAPEX TREND THAT'S COMING FROM THE MAGNIFICENT 7, THERE ARE PEOPLE PRODUCING AND USING SOFTWARE AND ALSO CONSUMING THE RESOURCES, SO YOU HAVE BOTH SIDES THERE. IT'S NOT JUST THE FOUNDATIONAL MODELS, YOU HAVE PEOPLE THAT ARE BUILDING SOFTWARE THAT ARE THEN CONSUMING THE CHIP SPACE. SO I THINK THAT'S GOING TO BE WHAT BALANCES OUT. THIS ISN'T ONE ARE THE OTHER, BUT BOTH. AND THEY BOTH HAVE ROOM TO GROW AND OPTIONS FOR IT. KATIE: LET'S TALK A LITTLE BIT ABOUT CAPEX BECAUSE THAT HAS BEEN ONE OF BIGGEST CONVERSATIONS HEADING INTO THIS EARNINGS SEASON. IT'S BEEN A PERSISTENT FEATURE OF THE PAST SEVERAL QUARTERS AS WELL. YOU SAW ALPHABET ABSOLUTELY PUNISHED AND IT COMES TO THEIR PLANS. I WONDER HOW YOU ARE EXPECTING IT TO GO OVER AT THE CHIP LEVEL. WE ARE STARTING TO GET REALLY INTO THE MEAT OF EARNINGS SEASON. WE HAVE THESE NUMBERS FOR INTEL. HOW DO YOU THINK THE CONVERSATION AROUND SEMICONDUCTOR CAPEX IS GOING TO EVOLVE FROM HERE? JANA: YOU HAVE TO REMEMBER, THEY ARE BEING PUNISHED NOW, BUT SINCE TWO THAT -- 2003 -- IT'S LIKE, YOU WANT MORE NOW? I DO THINK IT'S GOING TO BE INTERESTING TO SEE WHAT HAPPENED, BUT WE STILL HAVE A LOT THAT WE ARE CONSUMING AND WE HAVE A LOT OF CAPEX SPEND OUT THERE THAT IS JUST NORMALIZING FROM THE LAST FOUR YEARS. SO I WOULD LOOK AT IT AS, IT'S GOING TO BE A LITTLE BIT OF A LAG FOR THE HARDWARE MARKET, AND MAY BE IT'S A LITTLE BIT OF TIME FOR SOFTWARE TO CATCH UP ON THAT. BY THE TIME WE GET CAUGHT UP AND HARDWARE IS GOING TO BE NEEDING TO CATCH UP AGAIN. I KIND OF THINK THERE'S BEEN A LITTLE BIT OF LEAPFROG BACK AND FORTH. KATIE: WE HAVE A TERMINAL CLIENT WRITING IN WANTING TO KNOW HOW ARE THEY GOING TO PAY FOR THE CAPEX? IT'S A FAIR QUESTION. YOU SAW ALPHABET, FOR EXAMPLE, FOR THE FIRST TIME POSTING NEGATIVE FREE CASH FLOW. CERTAINLY IF SEEN THAT ACROSS THE BOARD, THAT INCLUDES IN SEMICONDUCTORS, DIPPING INTO FREE CASH FLOW, LOOKING TO TAP OTHER MARKETS TO RAISE THE MONEY. HOW CONFIDENT ARE YOU THAT ALL THIS CAPEX THAT IS BEING PLANNED CAN ACTUALLY BE PAID OFF? >> THEY'VE HAD REALLY GREAT MARGINS FOR MANY YEARS. THE QUESTION IS, DOES THE MARKET BELIEVE THAT THERE IS MORE OPPORTUNITY THERE? I THINK THEY NEED TO GET THEIR STORIES BETTER ON THAT. THEY NEED TO HELP PEOPLE UNDERSTAND WHAT ALL OF THIS SPEND IS GOING TO DO. THINK ABOUT THE OLD DAYS, WHEN WE WERE TALKING ABOUT CLOUD SPEND, AND PEOPLE REALLY NORMALIZED THAT. THERE WAS A HUGE CAPEX SPEND TO GO INTO THE CLOUD SPEND. WE FIGURED THAT OUT, WENT TO OP EX AND FIGURE THAT OUT, HOW DO WE CONTROL SOME OF THOSE COSTS. I THINK WE ARE STILL IN THOSE VERY EARLY STAGES BUT I THINK THERE'S A LOT OF SIMILARITIES THERE THAT PEOPLE CAN LOOK BACK TO. THIS IS BIGGER, BUT IT'S ALSO SOMETHING WE HAVE FIGURED OUT BEFORE. BAILEY: HOW MUCH OF A CONCERN IS IT THAT THE RISE IN CAPEX IS HEAVILY DRIVEN BY THE FACT THAT PRICES ARE SIMPLY GOING UP AND WE ARE STILL DEALING WITH A MEMORY BOTTLENECK? JANA: THAT IS A BIG QUESTION TO BE ANSWERED, BUT WHAT I WILL SAY IS WE ARE GOOD AT FIGURING THAT OUT. WE HAVE HAD BOTTLENECKS IN THE PAST BUT WE FIGURE OUT HOW TO GET AROUND THEM. REMEMBER BOTH ON THE HARDWARE AND SOFTWARE SIDE, YOU'RE DEALING WITH SCIENTISTS. SCIENTISTS LOVE PROBLEMS AND LOVE TO FIGURE THEM OUT. SO I WOULD SAY AS LONG AS THE BUSINESS PEOPLE ARE LEVERAGING THE SCIENTISTS THAT ARE BEHIND ALL THESE PRODUCTS, THAT'S WHERE YOU ARE GOING TO CHALLENGE THEM TO SOLVE THAT TYPE OF PROBLEM. KATIE: I LOVE THAT FOR THOSE SCIENTISTS SOLVING THE PROBLEMS. GREAT TO GET SOME TIME WITH YOU, I APPRECIATE YOUR PERSPECTIVE. LET'S TAKE A LOOK AT HOW MARKETS CLOSED OUT ON THE DAY. SOME OF THE BIGGEST MOVERS AFTER HOURS OF COURSE, WE'RE LOOKING AT INTEL. SHARES HIGHER ABOUT ABOUT 12% OR SO. THAT CONFERENCE CALL KICKS OFF AT FIVE APPLY P.M. AND IT WILL BE INTERESTING TO TRACK THE STOCK THROUGH THAT. DECKERS REPORTED EARNINGS, THEIR THE OWNER OF HOKAS, A BRAND THAT I LOVE. TRADERS ACTING TO THOSE RESULTS IN A DOWN FASHION. SHARES DOWN 3.5%. DIGITAL REALTY HIGHER BY 1.7%. THIS IS "THE CLOSE" ON BLOOMBERG. IT WAS A RE-PRIORITIZATION OF THE CAPEX SPEND AT THE END OF THE QUARTER. THIS IS PRETTY CONFINED TO THE FORTUNE 100. THE DEALS ARE A SUBSET OF THOSE. ONE THIRD HAS ALREADY COME BACK. THAT TELLS US THIS WAS A REPRIORITIZATION AS OPPOSED TO BEING OPTIMISTIC IN OUR PROJECTIONS. I WANT TO ALSO ADD, I THINK THAT MAINTAINING OUR FREE CASH FLOW TELLS US WE HAVE LEVELS OF PRODUCTIVITY AND CONVICTION AND CONFIDENCE IN THE BUSINESS AND THAT IS ALSO GOING TO SERVE OUR INVESTORS WELL, BUT THE NEXT FEW MONTHS WILL TELL US THAT. >> THAT CERTAINLY PLEASED A LOT OF ANALYSTS AND INVESTORS, THE BILLION-DOLLAR NUMBER, THE CASH FLOW GROWTH, MAINTAINING THE DIVIDEND, BUT YOU HAVE LARGELY DONE THAT BY CUTTING COST. IF YOU ARE ANTICIPATING SLOWER GROWTH ON THE REVENUE SIDE, DOES THAT MEAN MORE COST CUTS ARE IN-STORE? >> THE BULK OF OUR CASH FLOW GROWTH OVER THE LAST FOUR YEARS HAS ACTUALLY BEEN, SO THIS IS MOSTLY THROUGH REVENUE GROWTH AND OUR MODEL HAS ALWAYS BEEN THAT THE LAST DOLLAR IS MORE PRODUCTIVE AND PROFITABLE THAN THE FIRST DOLLAR. WE HAVE BEEN GROWING CASH FLOW UP IN THE 7, 8, 9%. RIGHT NOW, IF WE DROP REVENUE BY ONE POINT. WE CAN ABSOLUTELY MAKE IT THROUGH PRODUCTIVITY. COST CUTS IS AN INTERESTING QUESTION. IT DOESN'T ALWAYS COME DOWN TO PEOPLE, REDUCTION, AND HEADCOUNT. HEADCOUNT HAS BEEN FLAT OVER THE LAST MANY YEARS. THERE HAS BEEN A LOT OF THIRD-PARTY SPEND AND WE WILL GET A LOT MORE EFFICIENT WITH THAT THIRD-PARTY SPEND THEN WE HAVE BEEN ALWAYS. >> I KNOW THERE HAS BEEN A BIG FOCUS ON THE CLIENTS WHO DID NOT NECESSARILY MATERIALIZE ON THE QUARTER. WITH REGARD TO THE EXISTING CLIENTS YOU HAVE AND I'M REFERRING TO THE MAINFRAME BUSINESS, CAN YOU SHARE WHAT PERCENTAGE OF THOSE CLIENTS ARE ACTUALLY INCREASING SPENDING? IS THAT GOING UP STILL? >> ABSOLUTELY, THE CURRENT MACHINE IS CALLED THE Z-17, IT HAS BEEN SINCE 2025 THROUGH TODAY AT 130% IN TERMS OF THE CAPACITY GROWTH COMPARED TO THE PRIOR MACHINE. THAT IS ONE VERY STRONG SIGNAL AND THAT IS AN AGGREGATE. YOU CAN SEE IS EVERYBODY THERE ARE ONLY A FEW? 85% OF CLIENTS ARE INCREASING THEIR CAPACITY OVER THE 15% WHO ARE NOT. THAT OPTIMIZATION GOES ON ALL THE TIME AND I WILL TELL YOU THIS IS THE BEST WE HAVE SEEN AND A LONG TIME OF WHAT IS GOING ON THERE. >> SOFTWARE IS GOING TO LAG, WE KNOW THE HARDWARE CAPACITY IS THERE. I UNDERSTAND WHY IT IS LAGGING IN THE MOMENT. FORGIVE ME IF IT IS A BIT UNFAIR, BUT I LOOK BACK TO THE 1990'S AND WHETHER THERE ARE PARALLELS TO THE MAINFRAME ISSUES THAT IBM WENT THROUGH BACK THEN UNDER A PREDECESSOR TO HER THREE TIMES REMOVED. THIS IDEA THAT AT THAT TIME WE WERE GOING TO A PARADIGM SHIFT IN CONFUSION. THERE WAS A LOT OF TALK TO CEO THEN THAT THE ISSUES WERE TEMPORARY, ECONOMIC, AND THEY WOULD WRITE THEMSELVES. IN HINDSIGHT, WE KNOW THAT IT WAS MORE STRUCTURAL. WHY SHOULD WE LOOK AT THIS MAJOR SHIFT WITH AI AND THE COMPUTATION INVOLVED IN IT IN THINK THAT THIS TIME IT'S DIFFERENT? >> WELL, WE HAVE TO LOOK AT WHAT THE CLIENTS ARE DOING. OUR OPINION IS AN OPINION. WHAT CLIENTS DO IS WHAT MATTERS. WHEN I CHECKED WITH CLIENTS, ARE THEY GOING TO MAINTAIN THE MAINFRAME? WITH THE RESILIENCE, THE CAPACITY, THE UNIT COSTS OF IT BEING CHEAPER, THAT'S IMPORTANT. THE BIG DIFFERENCE FROM THAT TIME TO THE EARLY 1990'S, ROMAIN , IS THE CAUSTIC SHOE. YOU COULD NOT ARGUE THAT THE MAINFRAME WAS CHEAPER FOR THE WORKLOADS MOVING OFF THAN AT THAT TIME FOR MIDRANGE COMPUTERS. I WOULD CALL IT THE WHOLE UNIT. UNITS TAKING THE WORKLOADS OFF IN THE EARLY 1990'S. THAT ISSUE THAT YOU HAVE TO LOOK AT THAT THAT IS A CHEAPER ALTERNATE FOR THE WORKLOAD. I WOULD LOOK AT YOU AND SAY THAT IN FIVE TO 15 YEARS IT COULD MOVE OFF. BUT THAT IS THE CASE. RIGHT NOW MAKING SURE THAT IT'S FIVE TO 15 TIMES CHEAPER TO KEEP IT ON THE MAINFRAME THAN NOT, THAT IS NOT ALL WORKLOADS. THOSE ARE WORKLOADS THAT NEED PROTECTION AND RESILIENCE. THAT MEET THE CAPACITY THAT COMES. FOR THOSE THAT COME, IT WAS ARCHITECTURALLY SUPERIOR BUT THAT WASN'T THE CASE FOR THE WORKLOADS THAT WENT OFF. THANK YOU AGAIN -- KATIE: THANK YOU AGAIN TO THE IBM CEO. TESLA, SHARED STINKING 15% AFTER YESTERDAY'S EARNINGS FOR ITS BIGGEST ONE-DAY DROP SINCE MARCH OF 2025. JOINING US LIVE WITH MORE IS CAROL CARLSON. GREAT TO HAVE YOU WITH US. WE HEARD FROM ELON MUSK YESTERDAY SAYING THAT THIS IS A MASSIVE CAPEX YEAR, BUT AS WE HAVE SEEN IN THE SHARES TODAY, SO WOULD YOU WANT TO HEAR WHAT PROFITS ARE FALLEN WELL SHORT OF EXPECTATIONS. CRACKED SPENDING HAS BEEN A BIG TOPIC FOR TESLA THIS YEAR. THERE HAS BEEN A BIG CONCERN OVER UNDER OVERSPENDING IN TERMS OF CAPEX NUMBERS. IT'S PRETTY UNUSUAL FOR TESLA AND SOME INVESTORS WOULD LIKE TO SEE THEM INVESTING MORE IN A I N SEE SOME RESULTS COME FROM THE AREA THEY ARE INVESTING IN. KATIE: I MEAN, WHAT IS THE PATH FORWARD? ELON MUSK SEEMS VERY COMMITTED TO AI, BUT WHAT DO INVESTORS WANT TO SEE IN THE INTERIM WHEN IT COMES TO THE ACTUAL CAR BUSINESS? BUT THE CAR BUSINESS HAS BEEN LESS AND LESS OF THE FOCUS IN THE LAST FEW YEARS. WE DID SEE RECORD SALES RECOVERING TO FUND IT, BUT THE AI BUSINESS IN THE TESLA SENSE IS MUCH MORE ON ROBOTAXIS, HUMANOID ROBOTS, AND WE ARE STILL NOT SEEING A LOT OF CONCRETE PROGRESS, WHICH IS WHERE INVESTORS ARE GETTING A BIT FRUSTRATED. BAILEY: THAT'S THE QUESTION. IS THIS THE STORY THEY'RE BUYING ON SELF DRIVING FUTURES? ROBOTAXIS OR WILL THERE BE A PROJECT -- PRODUCT SHIPPED TO YOUR DOOR THAT CAN HELP YOU WITH TASKS? >> THOSE ARE ALL AREAS THEY TALKED ABOUT LAST NIGHT. THERE ARE STILL BIG AREAS OF FOCUS, BUT WHAT THEY STARTED TO LAY OUT LAST NIGHT WAS THAT THESE WOULD BE MUCH SLOWER RAMP UPS THAN PEOPLE WERE HOPING. THERE WERE TWO THAT THEY WERE GOING TO REACH AS EARLY AS THE FIRST HALF OF THE YEAR THAT THEY HAPPENED EXPANDED TO END IT SEEMS TO BE VERY FEW CARS, LOWER MILES THAN MANY WOULD LIKE TO SEE, AND OPTIMISM, SIMILARLY, THEY ARE LOOKING AT SOMETHING POTENTIALLY YEARS AWAY FROM ANYTHING BEYOND INTERNAL TRAINING AND WHAT THEY CALL THE OPTIMISTS ACADEMY. BAILEY: TOUGH DAY FOR TESLA BOWLS WITH THE STOCK CLOSING SHORTLY. TESLA, DOWN 15%, ENDING THE DAY AT 1.2 6 TRILLION MARKET CAP, JUST SHY OF THE SPACEX 1.5 6 TRILLION. KATIE: IT'S PRETTY INTERESTING, NO YOU HAVE TWO DIFFERENT ENTRY POINTS INTO THE ELON MUSK UNIVERSE, BOTH OF THEM COMING UNDER SOME PRESSURE IN THE LAST COUPLE OF WEEKS. TESLA, OF COURSE, ONE OF THE BIG STORIES TODAY. COMING UP WE WILL ALSO TAKE A LOOK AT THE SHARES OF DECKERS, WHICH ARE ALSO ON THE MOVE. WE BREAK DOWN THE NUMBERS AND TALK ABOUT THE WIDER RETAIL LANDSCAPE WITH MICKEY DREXLER, FORMER CEO AND CHAIRMAN OF THE J. CREW GROUP. THIS IS BLOOMBERG. ♪ I'M SURE WE'VE ALL BEEN GUILTY OF THAT. TALK US THROUGH THE DIFFERENT NUANCES YOU ARE SEEING IN THE CONSUMER RIGHT NOW. IT'S A WEIRD ENVIRONMENT, TO SAY THE LEAST. WE ARE HAVING A DIFFICULT TIME, HAPPY, NOT HAPPY WORRIED WORRIED. WHAT I SEE, AND I LIKE WHAT I SEE, I THINK MORE AND MORE PRODUCT IS THE THING. NICE PRODUCT, GOOD QUALITY, WELL-MADE, FAIRLY PRICED. I THINK THAT THE CONSUMERS, WHEN THEY SHOP SALE, THEY SHOW UP. BUT I DON'T THINK THAT THERE IS A LOYALTY IN THE SENSE OF SALE. I THINK THEY ARE SAYING -- IS IT WORTH IT, SHOULD I BUY IT? AGAIN, I SPEAK TO MY FRIENDS WHO RUN COMPANIES AND BUSINESSES. WHAT WE ARE SEEING, AND WE ARE DELIGHTED, THIS PRODUCT IS THE ISSUE IN TERMS OF BUSINESS. I THINK IT'S PRODUCT IN EVERY CATEGORY. AND IT'S NOT JUST BEING ON SALE. I THINK THAT SALE HAS TAKEN OVER THE INDUSTRY TOO OFTEN, A FRIEND OF MINE SAID YESTERDAY THAT SHE BOUGHT A BUNCH OF THINGS FROM WELL-KNOWN BRANDS AND SAID PROMISE ME IT WILL NOT GO ON SALE TOMORROW. WHICH, YOU KNOW? THEN THE SALESPERSON SAID THAT IF IT GOES ON SALE, YOU ARE ENTITLED TO THE CREDIT. THAT'S A NICE WAY TO SHOP. I THINK THAT PEOPLE HAVE TO TRUST THAT RETAILERS OR ANY BUSINESS THEY DO BUSINESS WITH, AND TRUST IS A BIG THING, I THINK THEY HAVE TO FEEL FOR US AND EMOTIONAL AND NOT JUST A COMMODITY BUSINESS, BUT I THINK PEOPLE REALLY WORRIED A LOT AND I THINK THE BIGGEST IS AFFORDABILITY. BUT THEY ARE WILLING TO PAY FOR QUALITY AND INTEGRITY OF MERCHANDISE. BAILEY: YOU MENTIONED THE FACT THAT YOU TALK TO LEADERS OF THESE COMPANIES. ARE THEY SEEING A PUSH TOWARD IN PERSON SHOPPING OR ARE PEOPLE PREFERRING TO BUY GOODS ONLINE WHEN THEY ARE SALE HUNTING? MICKEY: THE TRUTH IS, I CHECKED TO SEE THE CUSTOMERS WHO BUY SALE ARE USUALLY A REGULAR PRICED CUSTOMER. THERE ARE A GREAT AMOUNT OF PROFESSIONAL SHOPPERS OUT THERE WHO KNOW EVERYTHING EVENTUALLY WILL GO ON SALE. I DON'T TRUST SALES BECAUSE THERE IS A HIGH MARKET -- MARKUP. I THINK THAT HURTS THE TRUST AND LOYALTY OF THE CUSTOMER. SO WE ARE REALLY ONLY AN ONLINE BUSINESS. WE HAVE TWO SHOPS ON MANHATTAN AND ONE IN MARTHA'S VINEYARD. SO WE ARE ONLINE, BUT OUR RETAIL SHOPS ARE DOING QUITE WELL. KATIE: MICKEY, I HEAR WHAT YOU ARE SAYING WHEN IT COMES TO PROMOTIONS, WE COULD BE ENTERING A TWO PROMOTIONAL ENVIRONMENT BUT YOU HAVE TO IMAGINE FOR A LOT OF RETAILERS WHEN THEY TAKE A LOOK AT THE SENSE ON THE STREET THAT THEY FEEL LIKE THAT IS THE ONLY LEVER THEY HAVE TO PULL WHEN THEY ARE COMPETING WITH POCKETBOOKS FOR ALL THESE OTHER EXPENSES THAT WE KNOW ARE GOING HIGHER RIGHT NOW. I WONDER, DOES THAT HAVE TO BE MUTUALLY EXCLUSIVE, DISCOUNTS AND BUILDING TRUST AND LOYALTY? MICKEY: NOT NECESSARILY, BUT I'VE ALWAYS BELIEVED THAT THE LOYALTY SHOULD BE EVERY DAY TO YOUR BEST CUSTOMERS AND IT'S INTERESTING, THE OTHER DAY WE HAD A DISCUSSION, TWO GREAT COMPANIES, T.J. MAXX AND COSTCO, YOU WILL NOT SEE THE PRICING JUMPING UP AND DOWN, THEY PUT OUT THE RIGHT PRICE AT THE RIGHT COST, AND THAT IS WHAT THEY MAKE , THEY ARE TWO GREAT, BIG COMPANIES COME A GREAT COMPANIES. I THINK IT IS A MATTER OF RAISING PRICES AND THEN AFFORD TO BE ABLE TO SHOW IT IS A GOOD SALE RATHER THAN DAY IN AND DAY OUT PRICING. I WATCH THE NEWS SHOWS ALL THE TIME. THEY TAKE 50% OFF HERE. WHO BELIEVES THAT? BUT THAT IS MY OWN PERSONAL OPINIONS AND I'VE ALWAYS FOLLOW THAT IN MY EXPERIENCE, HONESTY, TRUSTWORTHY, FAIR PRICING, NICE GOODS, AND NO MULTIPLE SALES, EXCEPT A COUPLE OF TIMES A YEAR. BAILEY: YOU MENTIONED THAT YOU HAVE SOME BRICK AND MORTAR STORES, BUT ARE ALSO PREDOMINANTLY ONLINE. I WONDER HOW YOU THINK ABOUT THE EVOLUTION OF THE SHOPPING EXPERIENCE BECAUSE WHEN I TALK TO FOUNDERS AND CEOS AT THESE COMPANIES, WE ARE IMPLEMENTING AI SO WHEN YOU COME IN THE STORE, WE KNOW WHO YOU ARE AND WHAT YOU WANT TO BUY. IS THAT THE FUTURE OF SHOPPING? OR IS THE FUTURE ON CHATGPT? MICKEY: I THINK TALENT, CREATIVITY, AND VISION IS NOT GOING TO BE TAKEN OVER BY AI. I HAVE FIGHTS WITH MY FRIENDS ABOUT THAT BUT I NEVER HEARD AI, WE USE AI, FORECASTING IT IS GREAT, REPLACING CERTAIN JOBS IT IS GOOD, BUT IT WON'T REPLACE VISION AND IT WON'T PICK BEST COLORS AND IT WON'T DESIGN CLOTHES WHICH EVERYONE ARGUES WITH, BUT ARE -- OUR BUSINESS IS A TOUCH AND FEEL BUSINESS. I'M NOT A TECHNICIAN OR A TECHNOLOGIST, BUT I DON'T THINK AI WILL SOLVE ALL THOSE PROBLEMS. IT WILL COST AMERICAN JOBS WHERE IT CAN BE REPLACEABLE BY AI BUT I'M A BIG BELIEVER IN THE DESIGN STYLE AND INTEGRITY OF PRODUCT WILL BE DRIVEN BY PEOPLE WHO HAVE VISION, OUR CREATIVE AND THEY ALSO HAVE A GREAT TEAM OF AI PEOPLE AND EVERYTHING ELSE. KATIE: HAVE TO LEAVE IT THERE, ALWAYS FANTASTIC TO SPEAK WITH YOU. THAT IS MICKEY DREXLER. THE CHAIRMAN OF ALEX MALE AND THE FORMER CHAIR AND CEO OF J.CREW GROUP. SIGNALS FROM THE UPCOMING UNITED NATIONS TOWN HALL AS IT SEARCHES FOR AN UPCOMING SECRETARY GENERAL. THE U.N. FOUNDATION CEO WILL JOIN US LIVE NEXT. THIS IS BLOOMBERG. ♪ KATIE: TONIGHT, SIX CANDIDATES WILL SPEAK IN A TOWN HALL AS THE U.N. MOVES TO PICK A SECRETARY GENERAL. FORMER PRESIDENTS, DIGNITARIES, AND THE CURRENT IAEA DIRECTOR-GENERAL ARE AMONG THE CANDIDATES. FOR ANYONE UP TO THE TASK, THEY WILL FACE A CRITICAL U.S. GOVERNMENT, A NARROWING BUDGET, AND A PERIOD OF GLOBAL CONFLICT. WE ARE JOINED BY ELIZABETH COUSENS, PRESIDENT AND CEO OF THE UNITED NATIONS FOUNDATION. BEFORE WE GET INTO THE SPECIFICS OF THE CANDIDATES, GIVE US A LAY OF THE LAND. AS I'VE LAID OUT HERE, YOU THINK ABOUT ALL THE DIFFERENT CROSSCURRENTS HITTING THE UNITED NATIONS RIGHT NOW. IT CERTAINLY SPEAKS -- SEEMS LIKE A BIG AND URGENT JOB AT THIS MOMENT. ELIZABETH: ABSOLUTELY AND GREAT TO JOIN YOU. THIS IS AN EXTREMELY IMPORTANT RACE. IT HAS ALWAYS BEEN CONSEQUENTIAL, THERE HAVE ONLY BEEN NINE SECRETARY GENERAL'S IN THE U.N.'S HISTORY. THIS IS UNIQUE WITH BUDGET CONSTRAINTS. PART OF IT IS INCONSISTENCIES ABOUT THE U.N.'S DELIVERY. PART OF IT IS YEARS OF ACCUMULATING MANDATES AND FRAGMENTATION THAT HAVE LED TO SOME LOCKETS -- LOSS OF FOCUS BECAUSE THE WHOLE PREMISE OF THE U.N. COMMITTED TO THE IDEA THAT POWER SHOULD BE EXERCISED WITH RESTRAINT, THAT THERE ARE RULES OF THE GAME THAT APPLY EQUALLY IS UNDER UNPARALLELED STRAIN BECAUSE WE LOOK OUT AT SUCH A FIERCE GLOBAL HORIZON, WHETHER THE NUMBER OF CONFLICTS, THE HIGHEST NUMBER SINCE WORLD WAR II, THE BASIC PLANKS OF A PROSPEROUS GLOBAL ECONOMY, RISING INEQUALITY, YOU NAME IT, WE HAVE A YAWNING GAP BETWEEN GLOBAL CHALLENGES IN THE CAPACITY OF OUR INSTITUTIONS TO ADDRESS THEM AND THAT PUTS SUCH A FINE RACE ON THIS -- POINT ON THIS RACE FOR SECRETARY GENERAL. IT IS THE SINGULAR EMBLEM OF WORKING TOGETHER. IT IS THE ONE PLACE WHERE EVERY COUNTRY HAS A SEAT AT THE TABLE. KATIE: ABSOLUTELY AND YOU MENTION IN NORMA'S PRESSURE THE U.N. IS UNDER. A LOT OF THAT PRESSURE IS COMING FROM PRESIDENT DONALD TRUMP WHO HAS BEEN VERY CRITICAL OF THE UNITED NATIONS AND WHEN YOU THINK ABOUT THAT AND THE RELATIONSHIP THAT NEEDS TO BE MANAGED BETWEEN THE YOU AND AND THE PRESIDENT OF THE UNITED STATES, HOW DOES THAT INFORM THE TYPE OF LEADER THAT THE BODY SHOULD HAVE? ELIZABETH: LOOK, THE U.N. LEADER NEEDS TO HAVE GOOD, WORKING RELATIONSHIP WITH EVERY PERMANENT MEMBER OF THE SECURITY COUNCIL INCLUDING THE UNITED STATES. IT WAS THE CHIEF UNDERWRITER OF THE U.N. FROM ITS VERY FOUNDING SO THAT IS ESSENTIAL TO HAVE A PRODUCTIVE WORKING RELATIONSHIP WITH NOT ONLY THOSE FIVE MEMBERS, BUT THE ENTIRE MEMBERSHIP OF THE GENERAL ASSEMBLY, THIS IS THE PERSON WHO LEADS THIS INSTITUTION, BUT I THINK IT IS IMPORTANT TO REMEMBER THAT THAT U.N. HAS NEVER REALLY OR RARELY WORKED IN A BENIGN ENVIRONMENT. FOR MOST OF THE UN'S 80 YEAR HISTORY IT HAS OPERATED AN EXTREMELY FEROCIOUS GEOPOLITICAL CONDITIONS. THINK ABOUT THE DECADES OF THE COLD WAR, THAT IS NOT A HAPPY TIME WHEN EVERYBODY GOT ALONG. OFTEN, SECRETARIES GENERAL AND THEIR TEAMS HAVE TO NAVIGATE AMONG VERY DIFFICULT TENSIONS AND CONSTRAINTS, SO THIS TIME IS UNIQUELY CHALLENGING, I THINK WE CAN ALL RECOGNIZE THAT, BUT I THINK THAT IS PAR FOR THE COURSE OF THE JOB AND THE CANDIDATES COMING IN TO SAY I THINK I'M READY FOR IT UNDERSTAND THE ENVIRONMENT THAT THEY WILL NEED TO NAVIGATE. KATIE: ABSOLUTELY, REALLY APPRECIATE YOUR PERSPECTIVE AS WE HAVE COURSE COUNTDOWN TO WHEN WE MIGHT SEE THAT NEXT LEADER SELECTED. THAT IS UNITED NATIONS FOUNDATION CEO ELIZABETH COUS ENS. STAY WITH US BECAUSE MOMENTS FROM NOW ROMAINE BOSTICK AND HASLINDA ALMOND WILL BE MODERATING THE U.N. TOWN HALL AT 5:00 P.M. EASTERN ON THE DOT. THAT DOES IT FOR US ON U.N.." --FOR US ON "THE CLOSE." STICK AROUND FOR THAT TOWN HALL. THIS IS BLOOMBERG. ♪