December 9, 2025 • 38 mins
Mike Armstrong and Paul Lane discuss Nvidia getting approval to sell H200 AI chips to China. Why Oracle's earnings is a key moment for AI stocks. Job openings in October rose to 7.7m. Sam Altman's spring to correct OpenAI's direction and fend off Google. Paramount ramps up pressure on Netflix. Options traders brace for wild stock trading off Fed rate cut decision.
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Episode Transcript
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Speaker 1 (00:00):
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(01:06):
and Paul lane Man.
Speaker 2 (01:11):
I thought yesterday was a busy show, but we are
going to be back at it today because the news
keeps rolling in. We've obviously got the continued discussion over Netflix,
Paramount and WarnerMedia. If you missed yesterday's program. It looks
like we're heading for a hostile takeover, which is always entertaining.
(01:31):
At least it'll be put to shareholders this hostile takeover,
but that will be just the gift that keeps on
giving for the next few months.
Speaker 3 (01:40):
Would be my guest machine.
Speaker 2 (01:42):
We did get a job's report this morning. The Job
Opening's labor Turnover survey was released at.
Speaker 4 (01:48):
Ten am, six minutes ago.
Speaker 2 (01:50):
Sounds right, But the bigger breaking news was yesterday afternoon
when the White House announced that they are lifting restrictions
on Nvidia's ability to sell the latest, pardon me, and
greatest semiconductors to directly to China. Latest and greatest, yeah,
(02:11):
I suppose, but higher end than what's available.
Speaker 3 (02:14):
Now, higher and than what's available now.
Speaker 2 (02:16):
So I've been thinking through all of this and trying
to contextualize it and you know, put put together my
own thoughts on exactly what's going on here, why they're
going forward with this and if it marks a big
sea change. First things first, I think you know, whether
this is directly related or not.
Speaker 4 (02:36):
I found this to be interesting.
Speaker 2 (02:38):
There's a company in Texas called how Global, its owner
Alan Hausu, plead guilty in October of this year to
smuggling high end in video GPUs the h one hundreds
and two hundreds to China as part of a major
smuggling ring that was busted by US authorities for legal
exploiting one hundred and sixty million dollars worth of this
(03:00):
advanced AI tech that could not previously enter China. So
we have this guy pleading guilty. It was just unsealed
yesterday that this had happened. This is also a very
significant turn from the Biden administration. So yeah, from the
Biden administration, the you know, the overall strategy, and granted
(03:25):
things have changed since the Biden administration. Not saying this
is a good thing or a bad thing, but the
Biden administration when it came to China, when it came
to this technology, was pushing for basically global bands. And
it wasn't just on China, right, it was other countries
where we weren't certain about a lot of Middle Eastern countries,
a lot of countries that were not close allies. We said, yeah,
(03:47):
we're not. You're not getting these chips either. So there
was a much bigger ban the one with you know,
Middle Eastern countries and other nations. Those those walls have
slowly come down under the Trump administration and this is
a furthering of that strategy here. The other relevant point
that I want to make about this is just is
it two weeks ago now, maybe three you had this
(04:08):
new Google Gemini AI tool come out and like, cool,
it's slightly better than chat GPT. From what I understand,
that's not the relevant piece. The relevant pieces that Google
apparently trained this thing on semiconductors that they developed in house.
That is the claim from Google. I don't know why
they would lie about it. It would seem that would be
pretty misleading. I think that's been pretty much proven out.
(04:32):
And so when you take all of these things in
context together, you look at the Trump administration decision and
you say, okay.
Speaker 4 (04:40):
Google was able to develop this stuff.
Speaker 2 (04:42):
Seemingly pretty quickly. How far behind is China from doing this?
Speaker 4 (04:49):
Right?
Speaker 2 (04:49):
I mean, it's not like Google was working on this
in twenty nineteen. Basically two came around and they saw
how much progress that chat GPT had made and said, oh,
they might have been working on semiconductor development. I'm sure
they were working on AI, but they did not have
this lightning focus, this laser focus on the generative AI,
(05:09):
the large language model. And so the fact that probably
over the course of three years they were able to
put this focus on there develop a semiconductor that can
train this thing, I think is relevant to this conversation.
The conviction of this company and this individual in Texas
who was funneling these chips to China illegally and you know,
(05:29):
allowing them to get access to them, I think is
another acknowledgment that hey, these bands might sound.
Speaker 4 (05:35):
Good to our voters, but might not actually be doing anything.
Speaker 2 (05:39):
And then furthermore, we have this pressure from Nvidia saying, hey,
either let us sell this stuff to China or they're
going to develop their own homegrown industry. I start to
understand the reasoning why the Trump administration has gone this direction.
Speaker 3 (05:51):
I'm not sure that it ties together all that neatly,
in just the sense that it's worth looking at just
how sophistic these chips are relative to the ones that
are being used to train the large language models that
we're looking at today, which are majority the Blackwell chips,
like the most recent advancement that we've seen, and to
(06:13):
step back for a second, probably explain, Nvidia is the
designer of the most sophisticated chips that help power for
any listeners out there that I've used chat TPT, that
I've used Gemini, those models are trained on chips that
were either designed by Nvidia or, in the case of Gemini,
the TPUs that Mike was referenting before, which are Google's
in house chips. Those are two and a half times
(06:35):
four times better performers and more sophisticated than these h
two hundreds that we're speaking of here that China has
not had access to but now supposedly is going to
have access to sooner. So from the schools of thought,
initially there was the Biden administration idea of we should
just not have any of these sophisticated chips going to
(06:57):
China at all, and that's why there are several behind
when you look at the most advanced cutting Jai chips
out there. There's also been an argument made by Jensen
Wang of Nvidia that, No, it's better for them to
be in our back pocket in a sense and have
China more reliant on our chips.
Speaker 4 (07:13):
Have them be a buyer exactly, have.
Speaker 3 (07:15):
Them be a buyer so that they are just committed,
committed to using our chips. That way we control their
access to them. And ultimately you're right from a policy standpoint,
this is a clear shift by opening the door to
that a little bit more. But it is worth noting
still a lesser version of those chips and prefer is
(07:35):
not a Google tie in.
Speaker 4 (07:37):
Here is my question. Can you name one industry, any
one technology or industry that has ever made the argument, hey,
we need to go to China because A it's a
huge market and B we don't want them to develop
this stuff on their own, and has successfully gone to
China without having their IP intellectual property ripped off and
(07:59):
then a du you know, a duplicate industry homegrown in China.
The only one that I can think of is Boeing.
The only company in the world that I can think
of in the history of American or you know, European
companies who have ever said, hey, we need to go
after the Chinese market a because it's a huge market
(08:20):
and b because otherwise they're going to go do it
themselves and has actually been successful. And Tesla did it,
Starbucks did it again, not that I think Starbucks has
some great intellectual property, but even there, they went to
China and now Luck in Coffee is eating their lunch
because they realized that this was the case. Solar panels
(08:42):
cars Like, I'm just trying to think of what track
record here we have of being successful in this, and
I cannot think of a single industry or company other
than planes.
Speaker 3 (08:55):
And is that maybe because and I don't know the
history on this, that China wasn't ask committed to commit
a lot of capital to development. It's not a very
profitable business to run. The manufacturers make money on the
airplane engines and the parts, but the airlines itself. Just
maybe there wasn't as much emphasis on China.
Speaker 2 (09:12):
Because if I'm China, I'm probably thinking to myself, Okay, great,
I can get my hands on these Nvidio chips now.
But it is an absolute arms race to be able
to do this my own because the next president of
the United States can shut off my access to these
Age two hundreds.
Speaker 3 (09:26):
But also, Mikey, we have to make the point here,
I don't think China wants to have access to them.
From a policy standpoint, there's gonna be significant. That's why
I would I know it's the lead of the show,
but I would argue it's almost much to do about nothing,
because Okay, you're permitting these chips to be sold to China.
They don't want them, or they're gonna take a very
hard stance on allowing them to the country. Why don't
(09:48):
they want them because they want to domestically develop a
solution themselves.
Speaker 4 (09:51):
Yep. So they're also worried about spying national security.
Speaker 3 (09:55):
Well, prior to the.
Speaker 2 (09:56):
United States, i'd put some tools to spy on china
today's things, so I'm guessing we do.
Speaker 3 (10:00):
They're leaning on that to further their you know, messaging
that hey, this is why we should not be so
reliant on these.
Speaker 2 (10:07):
But I would agree, you create a shortage and hopefully
your economy will innovate a solution to that shortage. And
that's what I think they're hoping for here is even
if we can buy these, we're going to set pretty
strict limits on how many companies are allowed to because
we want a homegrown.
Speaker 3 (10:20):
Che Yes, So you look at the domestic provider in Nvidia,
Do I think they get a huge boost from this
from a revenue perspective? No, not really enough to see
what the stock is doing today, I don't think it
was moving tremendously amount in the pre market. And yeah,
they're they're flat, They're down two thirds of a percent,
and then China's not going to allow for many people
to buy them. So where do I think the more
(10:41):
interesting question is where do you stay on the side
of just restrict any technology from them at all? Or
is it hey, we'd rather them in their back pocket.
That's the hard question.
Speaker 4 (10:52):
And is Blackwell next?
Speaker 3 (10:54):
Right?
Speaker 2 (10:55):
If I'm Jensen Wong, that's you know, okay, yeah, put
it on my calendar for January tenth. I'm going back
to the White House and trying to convince them that
we need to sell the black Well Well.
Speaker 3 (11:02):
What's interesting is a group of US senators has introduced
legislation that would delay this by thirty months. For these
two hundreds, that's gonna be light years behind. They're already
talking about the Rubin after the black Bell. So if
you delayed thirty months, this is like ye total non
good point.
Speaker 4 (11:15):
Uh.
Speaker 2 (11:15):
The the final interesting points that I'll bring up on this.
In Nvidia earlier this year, via kind of a handshake
agreement with the White House, agreed to voluntarily pay the
US Treasury a quarter of all sales to China. Remember
that well fifteen percent of revenuee percent of revenues on
the H twenty, which is a water down version of
(11:36):
these eight two hundreds. So presumably there's you know, going
to be some higher volume of these sales to China
and they are willing to pay the US Treasury. There
is absolutely no uncertainty that the White House has no
authority to tax exports, like it's one thing for you know,
(11:57):
for for tariffs to be levied by the White House.
There are some legal press since they're there is zero
legal precedent to tax exports none whatsoever, and constitutionally it's
a real question. But it was pointed out to me
by somebody that yeah, sounds great, but who's going to
sue here?
Speaker 4 (12:13):
Right?
Speaker 2 (12:14):
It's it's not going to be in Vidia. They agree
to the deal. What standing do they have to sue?
You're taxing some other companies, So I'm going to sue
the government? I don't think so?
Speaker 3 (12:23):
Is that how they're they're administering through a tax. It's
not just like a revenue.
Speaker 4 (12:28):
What's the difference.
Speaker 2 (12:29):
Yeah, so two things can be true to me. One,
it looks like this, you know, handshake agreement, were it
to be enforced by the White House, would be very illegal.
And Nvidia, if they brought to court would absolutely be
able to say we don't have to pay this, But
at the same time, probably has no incentive to bring
(12:49):
it to court because the only way they're able to
sell these things.
Speaker 3 (12:54):
Or zero.
Speaker 4 (12:55):
Yeah, let's take a quick break.
Speaker 2 (12:57):
A lot more AI stories to cover here, and in
particular a big earnings report this week that will be upcoming.
Speaker 4 (13:05):
We'll be talking about that next. On The Financial Exchange, business.
Speaker 1 (13:09):
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(13:29):
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Speaker 5 (13:36):
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Speaker 3 (13:47):
Thank you veterans for all you've.
Speaker 2 (13:49):
Done, so paul A few I'm gonna say a month
ago there was a bit of a turn in the
narrative around AI. And again it hasn't really continued. There's
been drips of it in the media, but I would
say a month ago the only thing that we were
covering on this show was investor concerns about AI being
(14:09):
overbought and companies getting you know, circular financing deals and
you know, starting to look a.
Speaker 4 (14:16):
Lot like the dot com bubble.
Speaker 2 (14:18):
I will also acknowledge for a minute that most of
the conversations about that have gone away over the course
of the last couple of weeks. I don't hear that
mentioned nearly as much, but Barons here points out that
we'll have a pretty good test of that narrative tomorrow
when Oracle goes and reports earnings. And I think they're
right in so far of one thing, which is this
(14:39):
is one of those companies that is on the periphery
of the of the AI trade, right they have these
deals with AI companies.
Speaker 4 (14:49):
They are not one themselves.
Speaker 2 (14:50):
They are a computing company that briefly benefited quite a
bit from some of these announced deals, but over the
course last month they've lost eight and a half percent
of their value. I think are even more over the peak.
I mean, talk to me about where this has gone
over the course of the last few months, because it
has been pretty wild.
Speaker 3 (15:11):
Incredible ride. So to set the context, you made the
good a stew point that it did seem like over
the course of the last call it month and a
half to two months, there were more and more stories
and concerns being raised about the amount of infrastructure spend
within artificial intelligence and are there is there going to
be revenue to justify that. A month preceding that, you
(15:33):
had probably the peak of sort of the optimism behind
some of the artificial intelligence deals, where Oracle announced a
three hundred billion dollar contract with open Ai, the makers
of chat TPT that would begin in twenty twenty seven,
and their stock that day soared about thirty percent just
(15:54):
within one day of announcing that news. The stock was
at two hundred and thirty eight dollars to share on
the close September eighth, and it closed on September tenth
at three hundred twenty eight dollars a year today or we.
Speaker 2 (16:06):
Just paused there real quick. So the deal that was
announced was how much money for Oracle?
Speaker 3 (16:11):
Three hundred billion dollars of future revenue commitments for a
five year contract with open Ai beginning in twenty twenty seven.
Speaker 4 (16:17):
Got it?
Speaker 2 (16:18):
And just to be clear, open Ai, the privately held
company that created Chat GPT, according to most estimates that
I'm seeing, is expected to generate revenue in twenty twenty
five less the numbers.
Speaker 3 (16:30):
Eighty thirteen, but it should close it like.
Speaker 2 (16:31):
Twenty Okay, yeah, so twelve to thirteen to maybe twenty billion.
So you are talking about commitments that they are making
to one single company that are somewhere in the range
of fifteen to twenty x their annualized revenue.
Speaker 4 (16:44):
Got it corep going.
Speaker 3 (16:46):
So from there you see Oracle stock today at two
hundred twenty dollars a share, so lower than it was
prior to that announcement in September. What is what has
happened over that span of time? It's exactly what Mike
mentioned in tern terms of the revenue from Chat, TBT
and open ai. Is Oracle is what does it entail?
(17:07):
That three hundred billion dollar deal well, Oracle is going
to do the heavy legwork to build out all the
infrastructure that open ai is going to lease the computing
capacity for them. So we talk a lot about in
the show's data center construction. Oracle is going to be
behind getting the shovels into the ground, getting the chips
into the data centers, to build out the infrastructure that
open ai will lease from them. Well, it's a little
(17:29):
concerning when you have a three hundred billion dollar commitment
for a contract for a company that's doing twenty billion
dollars in revenue that's eventually going to lease your computing spaces.
Are they going to have the money to pay for it?
Are they going to have the money to be able
to come up with that commitment? And these data center
commitments are significant. You're talking about building out four and
a half gigawatts of computing capacity. What does that mean.
(17:52):
That's like the state of Virginia or Massachusetts in terms
of the residence, households, electrical consumption building out these data centers.
It's a huge commitment. So we bring this forward to today. Tomorrow,
they're going to come out with their earnings. These deals,
some of them are for the future. We just talked
about before. But the question is are they executing, are
they converting on them? Are they realizing the revenue and
(18:13):
getting infrastructure growth on their cloud development from other users.
That's what we have to look at tomorrow. I don't know.
Speaker 4 (18:20):
Really for that.
Speaker 3 (18:21):
I was a little surprised Mike with this piece, like
how much are we really going to get tomorrow?
Speaker 2 (18:25):
So, for instance, the deal with open Ai, it's a
five year contract beginning in twenty twenty seven. Right now,
there's a boatload of worth in Oracle needs to do
ahead of time in order to start getting that revenue
in twenty twenty seven. Don't get me wrong, But what
are they going to say other than if you can
going ahead and it's something great.
Speaker 4 (18:42):
If you don't.
Speaker 2 (18:43):
If they say, oh we hit a few stumbling blocks
and we're not sure we're going to be able to deliver,
then you know, all bets are off and this if the.
Speaker 3 (18:49):
Infrastructure stuff gets delayed, that would really hurt them big time.
The benefit they would receive is, hey, we've got other
people who are interested, We're growing.
Speaker 4 (18:56):
Yeah.
Speaker 2 (18:56):
Commit if they disclose new big customers, if they come
out and say, you know, also Xyz company has replicated
the open aideal and we are looking to be in a.
Speaker 4 (19:05):
Good spot, then that's a different story.
Speaker 2 (19:08):
But if we get more of this, Oh yeah, we're
going to be providing computing power to this company, and
in exchange, they're going to be giving us semiconductors that
we're going to buy from that same company. Uh yeah,
we'll see how the market reacts to that. One quick break.
Wall Street watches next and then we're talking jolts.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street watch a complete look at what's moving markets so
far today right here on the Financial ex Change Radio Network.
Speaker 5 (20:02):
All Right, stocks are a little change as investors await
Wednesday's FED decision. The Dow Jones is up two tenths
of a percent, The S and P five hundred is
up point zero nine percent. The Nasdaq on the Onion
is down point zero six percent. Right now, President Donald
Trump said the US will allow in Vidia chip to
ship its H two hundred intelligence jeez, it's eight h
(20:25):
two hundred AI chips to China and elsewhere. The US
will get a twenty five percent cut for the sales
which are only allowed for approved customers, and Vida is
currently down just over half a percent. CVS shares are
up over three and a half percent after the company
provided twenty twenty six profit guidance that came above Wall
Street estimates and this year's projected earnings, marking a sign
(20:49):
of steady progress in its turnaround plan. Home Depot shares
are up just over two tenths of a percent after
the home improvement giant issued weaker than expected earnings growth
goy ID for twenty twenty six. AutoZone shares are down
four percent after the automative parts retailer reported worse and
expected results for its fiscal first quarter. AutoZone posted earnings
(21:12):
of thirty one dollars and four cents per share on
revenue of four point sixty three billion dollars, and a
list polled expected a profit of thirty two dollars and
fifty one cents per share on revenue of four point
six four billion dollars. And finally, drone maker aero Vironment
is up one point three percent after it was awarded
a eight hundred and seventy four million dollar contract from
(21:33):
the Army for Unmanned Aerial Systems and counter UAS Systems.
I am Ben Kitchen and that was Wall Street watch.
Speaker 4 (21:42):
Man Ben from the sounds that you need to get
in the zone. That AutoZone joke. You don't get a
lot of those, dyeah.
Speaker 3 (21:50):
I'd say ouch, but I did really appreciate it.
Speaker 2 (21:53):
We received a report this morning at ten a m.
Paul on the state of the labor market back in October.
So I'm not gonna call it completely relevant, but a
little bit irrelevant.
Speaker 4 (22:02):
At this stage.
Speaker 2 (22:03):
But this follows on the What was the Job's report
that we did get was that the September jobs report,
So this is data collected for October, a little bit
more current and to me kind of reconfirms a few
of the things that we saw there one in September.
I'll acknowledge that the labor market did we both saw
(22:23):
an increase in the unemployment rate, but also an increase
in the number of hirings that took place, And I
think this report kind of coincides with that. Where in
October you did see a slight increase in the number
of job openings. It was pretty much unchanged, but it
was a very small increase in October to seven point
seven million. Job openings and the discharges, quits, layoffs, et cetera.
(22:46):
Were pretty much flat for the month of October as well.
So this is clearly not a report that the FED
worries about from an inflationary perspective. But to me, you know,
if you're the Fed, you're meeting right now and making
your decision on interest rates tomorrow. I don't think any
of this, anything in this report would sway me from
(23:07):
my decision to lower rates by a quarter of a
percent tomorrow when they go to announce that decision.
Speaker 3 (23:13):
No, I don't think that that would be the case.
It does look like we still sit at a eighty
eight percent probability according to CEMEA futures that we will
see a rate cut at tomorrow's meeting at two o'clock tomorrow.
We get the info in that, but this doesn't change
that course at all.
Speaker 2 (23:30):
In October, the rate of quits was a little change.
It was two point nine million. The rate was one
point eight percent. It was down though the quits rate
is down by about two hundred and seventy six thousand.
Speaker 4 (23:42):
Over the year.
Speaker 2 (23:44):
Specifically, the quits declined in accommodation and food services, healthcare
and assistance federal government. In addition to that, the total
separations were down, specifically in healthcare and social assistance again
and the federal government as well.
Speaker 4 (24:03):
Layoffs.
Speaker 2 (24:05):
Again, I don't think it's worth notable really seeing anything
there because you're just not seeing big layoffs according to
this report. If you go ask challenge your grand Christmas,
they would tell you another story. But again, we're not
seeing any big new moves here, and so again it's
backward looking. It's not telling us anything about this week,
or last week, or even anytime in the last month.
(24:27):
But I think what it does deliver for me is
some certainty that in October you did not see any
big surprise moves in the status of layoffs, hiring, or anything.
Speaker 4 (24:37):
Else along those lines.
Speaker 2 (24:38):
So if you've got a job, you're probably still pretty
incentivized to try and keep it because you're worried about
the state of the labor market if you're currently unable
to find one. I don't know that anything about this
report is going to make your life easier. Agreed, do
we want to talk about now? Let's keep on the
AI train for a moment here. So what happened after?
(25:03):
Is that what the AI chance? You would think that
the AI train would have a slightly more modernized horn,
don't you, rather than like a steam horn. It might
sound a little bit more like my four year old.
Speaker 3 (25:13):
Son that we played train tracks every night. So you know,
I'm kind of kind of ingrained in my AI model
here that runs at a very low power.
Speaker 4 (25:20):
That's at your request, I assume, yeah, exactly, get down here,
we're playing trains.
Speaker 2 (25:25):
Uh So when Gemini three, Google's new large language model
was released that pretty much the same week, Sam Altman,
the founder of open Ai, came out and put out
a quote code red for his company.
Speaker 3 (25:37):
I'd be so pissed about Sam Almon and that came out.
Who leaks that that? I said, code read? Because it's
been referenced a bunch. Yeah, and it's very self explanatory
what it means.
Speaker 4 (25:47):
Oh, I'm not sure.
Speaker 2 (25:48):
I think Sam Altman loves that kind of attention, you do, Yeah,
I tend to think that he loves the idea of,
you know, being publicized as declaring it a code read
from my I.
Speaker 3 (25:57):
Just picture like a big red buttonized desk. Yeah, we
all do.
Speaker 2 (26:01):
It's a Simpsons type situation going on. But in either case,
open ai is set to release a new model called
five point two, which like, at least you give me
some whole numbers in the numbers. So anyway, five point
two model this week. I think that if that thing
does not knock people's socks off, then there's gonna be
(26:21):
some more pressure on this company. I would personally not
be looking to release something new until I'm pretty confident
it can outperformed Gemini, but nonetheless they're going about that.
Speaker 4 (26:31):
And I'm just kind of the Google move on.
Speaker 2 (26:36):
This announcement was really big for a number of reasons,
but to me, the biggest one is not about Google
or open Ai. It's about the idea that with enough
determination and clearly a lot of money, Google was able
to do this. They were able to leapfrog the first
to market provider out there. Now, maybe it doesn't move
(26:59):
the needle because there is some advantage to the you know,
first to market when it comes with.
Speaker 3 (27:04):
Eight hundred million active weekly users for chat TBT.
Speaker 2 (27:09):
But on the other hand, it's not Deepseek, it's not
some Chinese AI startup that nobody's going to download the
app for.
Speaker 4 (27:19):
This is Google that.
Speaker 3 (27:20):
Has a lot of brand recognition that.
Speaker 4 (27:23):
People are day that it was released.
Speaker 2 (27:25):
It was automatically updated on my phone because I have
a Google phone, Like, they have a built in user
base here that I think they can quickly catch up on.
And guess what, so does Apple, so does Meta and
so the the story that I'm focused on is are
we seeing the commoditization of large language models? Are these
(27:46):
things just going to get better and better, cheaper and
cheaper and more and more competition, And in which case
where does.
Speaker 4 (27:53):
That leave Opening?
Speaker 2 (27:54):
Like I see where that leaves Google, right, they have
this built in user base. It's part of their overall infrastructure.
They can to be spending this money. I don't know
where it leaves open Ai and their verbin Ai doesn't
have another business.
Speaker 3 (28:05):
They're vertically integrated Google is. They have the chip design.
We talked about that earlier in the show. They have
the data centers. They have a ton of training data
because there's been billions, I don't know trillions of searches
runs over the years on their interfaces. And like what
you said, they have the user base too. They have
billions of users of the Android phone, they have billions
of users of all the apps that they have. So
(28:27):
that's what's been the biggest fear, and that's all we've
talked about in terms of this open AI or this
artificial intelligence arms race. The concern that I have on
the model front on CHATTPT that this article dives into
a little bit, Mike, is when you have a business
in panic or co reed, we'll call it, some of
the guardrails will start to get put down a little
(28:48):
bit in attempts to catch up. And I won't try
to go too into the weeds here, but some of
chat TBT has leaned a little bit more on user
feedback to sort of generate the best responses. And the
problem can be if you're not leading on professionals or
other ways to confirm different responses, and you're leading on users,
(29:11):
you can kind of get this the cycle going where
you're giving users what they want and that's not always
the best thing. And we've seen some scary cases of
this in terms of mental health and psychological impacts of
users that have kind of lost themselves within these large languages.
Speaker 4 (29:28):
Don't worry about that. We'll deal with that twenty years
from now, like we are with social media now.
Speaker 3 (29:32):
Very true.
Speaker 2 (29:33):
Let's take a quick break. When we come back, I
don't know if I can keep going on on more A.
We gotta go, Paramount, Let's go switch over to the
pending hostile takeover and the knife fight that's going to
occur over at Warner Brothers.
Speaker 4 (29:49):
That's next.
Speaker 3 (29:49):
The Financial Exchange text us.
Speaker 1 (29:52):
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Speaker 2 (30:47):
So last week we covered the announcement buy Netflix and
WarnerMedia that WarnerMedia had accepted Netflix offer for most of
their company was at twenty seven dollars seventy five cents
per share and included everything but the TV networks Turner
Media TV Networks. Since then, there has been a just
(31:11):
firestorm here about where this is going to go. Apparently
Larry Ellison, founder of Oracle close ties to the White House,
made a pretty quick call over to the White House
explaining his concerns regarding the acquisition and anti competitive nature
of it. And then this week we've had David Ellison,
(31:34):
who runs Paramount now expressing those same concerns and also
bringing the vote on the deal directly to shareholders. So
Paramount also made an offer for Warner Media. They wanted
to buy the whole shebang, and they wanted to do
it at thirty dollars a share.
Speaker 4 (31:54):
And Warner turn them down.
Speaker 2 (31:56):
They basically said, you know, we're going to be left
with a better by going with the Netflix deal here,
because we're still going to retain some assets that we
can sell later. Some expertise that I've seen has thrown
out you know, a value per share of thirty one
to thirty two dollars per share, given the legacy assets
that Warner will hold on to and then probably sell
off to another buyer. I think a few things are true. One,
(32:20):
Paramount really wants this deal to happen. I don't think
they want to compete with Netflix in the movie studio business.
Paramount does currently own a Hollywood movie studio. I don't
think they're already facing a lot of competition from Netflix
releasing their own movies. I don't think they want more
competition in that space. They seriously don't want the additional
competition with from a streaming well.
Speaker 3 (32:42):
Because they needed for the streaming big time yep.
Speaker 2 (32:45):
So they you know, Netflix here would very much solidify
their grasp on the streaming business as well, and so
they're going to make their pitch.
Speaker 4 (32:55):
I think a few things are true.
Speaker 2 (32:56):
One, I do think that this would be a much
faster deal for share holders that care about that, you know,
for Paramount to come in here and buy the whole company,
probably you're not going to.
Speaker 3 (33:06):
Have as much on the anti test concern side of things.
I don't think, because Paramount's kind of the three or
four player in the streaming space.
Speaker 2 (33:14):
Yeah, I'll argue, I'm not sure you shouldn't have more
as much scrutiny on it.
Speaker 4 (33:18):
They own their own.
Speaker 2 (33:19):
Movie studio, Like, you're going to see further consolidation there,
but I don't think you will larger because of the
ties to the White House and some pushes there too.
You're buying the whole company, so I think it would
close faster, and so that might be appealing to shareholders.
But honestly, what I hope you see is a bidding
war for this. I don't think that either can really
afford to dramatically jack up the price. But then, you know, hey,
(33:44):
if this is going to get really ugly, does Apple
step in and just say, yeah, we'll take it, like
we've got the cash to pay for this thing, and
you know, leave you both high and drive. It would
be interesting, That would be fascinating to me. But it
is going to continue to get uglier, I think over
over the next few months.
Speaker 4 (34:01):
Here.
Speaker 2 (34:01):
It's possible by the way that Netflix just gets scared
away from it. They're like, they could just say, you
know what, anti trust, we don't want to get on
the wrong side of the White House. We're just going
to back away from this deal, but they seem pretty
deep into it and I don't think they're going to
go that.
Speaker 3 (34:14):
Well, that's what I'm wondering, because so Netflix came, that
deal was about eighty three billion dollars and then you've
got Paramount coming in a one hundred eight billion dollars. Now,
granted it's not apples to apples because of the some
of the asset differential, but assuming your Netflix, you probably
have to come close to meeting that bid. How much
higher do you want to go? And I have no
idea how high Netflix wants to go, but you make
(34:35):
a fair point. It's already a very significant increase from
where its offer was, granted with some additional assets as
part of it.
Speaker 2 (34:42):
But or does Netflix just say, hey, we're going to
buy the whole thing, and part of the agreement will
be to spin it off ourselves, so we'll find the uh,
we'll find the buyer for this business, rather than you
having to find the buyer for the business. Like any
of those things are possible, but needless to say, this
is going to be entertaining.
Speaker 3 (34:58):
So you also you also of the other wrinkle that
David Zaslov, who is the CEO of Warner Brothers, felt
as if this is speculation, to be clear that there
was rumors that they thought that he would be treated
more fairly and Netflix. If Netflix was to acquire Warner
Brothers and sort of keep him in a role for
(35:20):
a significantly longer period of time and have a lot
more job stability than he would perhaps run an interest
in which you can't have if you're selling your company.
Speaker 2 (35:29):
You got although if that were the only incentive, then
you would have gone to Comcasts and sold to them
because they're going to make him the CEO of the entire.
Speaker 3 (35:36):
It's that balancing act of like you have to maximize
sharehold of value and ultimately you got answer to the board.
And that's why this is going to become really problematic
for him. When you've got a bid that's significantly higher.
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Speaker 4 (36:52):
Paul.
Speaker 2 (36:52):
We do have the announcement from the FED coming tomorrow afternoon,
so we'll be covering it on this show on Thursday.
But one piece I find interesting options traders bracing for
a pretty big swing in stock prices. You can measure
this by the implied volatility moves, I'm not.
Speaker 4 (37:08):
I suppose.
Speaker 2 (37:10):
That the commentary could catch investors by surprise, but the
announcement itself does not seem to me like it's going
to they're going to cut by a quarter percent and
they're going to I mean, what are they going to
say other than we're gonna wait and see and.
Speaker 3 (37:24):
It's going to be a high bar for us to
maybe do another cut. To me, like that print that
today and it.
Speaker 4 (37:31):
Doesn't win it does anybody surprise anybody whatsoever? I can't.
Speaker 2 (37:34):
I'm not sure why the investors are buying all these
options on potential volatility here, because to me, it's fairly
clear what is going to happen unless I'm missing something
on all.
Speaker 3 (37:43):
Unless they were saying we're not cutting, that's the only
you know.
Speaker 2 (37:47):
What could be interesting is you've had a few votes
now where FED members have been diverging on opinion, and
if you have a significant divergence of opinion here, like
you know, three voting members saying no.
Speaker 3 (38:00):
Three quarters of a percent cover.
Speaker 2 (38:01):
I'm saying half cot like that would potentially, you know,
really shake up markets a bit, so potential for some
volatility coming this up tomorrow afternoon, rather quick break, a
lot more to cover in the second hour of the
Financial Exchange.
Speaker 4 (38:15):
We will be right back
The Financial Exchange is produced by Money Matters Radio and
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(01:06):
and Paul lane Man.
Speaker 2 (01:11):
I thought yesterday was a busy show, but we are
going to be back at it today because the news
keeps rolling in. We've obviously got the continued discussion over Netflix,
Paramount and WarnerMedia. If you missed yesterday's program. It looks
like we're heading for a hostile takeover, which is always entertaining.
(01:31):
At least it'll be put to shareholders this hostile takeover,
but that will be just the gift that keeps on
giving for the next few months.
Speaker 3 (01:40):
Would be my guest machine.
Speaker 2 (01:42):
We did get a job's report this morning. The Job
Opening's labor Turnover survey was released at.
Speaker 4 (01:48):
Ten am, six minutes ago.
Speaker 2 (01:50):
Sounds right, But the bigger breaking news was yesterday afternoon
when the White House announced that they are lifting restrictions
on Nvidia's ability to sell the latest, pardon me, and
greatest semiconductors to directly to China. Latest and greatest, yeah,
(02:11):
I suppose, but higher end than what's available.
Speaker 3 (02:14):
Now, higher and than what's available now.
Speaker 2 (02:16):
So I've been thinking through all of this and trying
to contextualize it and you know, put put together my
own thoughts on exactly what's going on here, why they're
going forward with this and if it marks a big
sea change. First things first, I think you know, whether
this is directly related or not.
Speaker 4 (02:36):
I found this to be interesting.
Speaker 2 (02:38):
There's a company in Texas called how Global, its owner
Alan Hausu, plead guilty in October of this year to
smuggling high end in video GPUs the h one hundreds
and two hundreds to China as part of a major
smuggling ring that was busted by US authorities for legal
exploiting one hundred and sixty million dollars worth of this
(03:00):
advanced AI tech that could not previously enter China. So
we have this guy pleading guilty. It was just unsealed
yesterday that this had happened. This is also a very
significant turn from the Biden administration. So yeah, from the
Biden administration, the you know, the overall strategy, and granted
(03:25):
things have changed since the Biden administration. Not saying this
is a good thing or a bad thing, but the
Biden administration when it came to China, when it came
to this technology, was pushing for basically global bands. And
it wasn't just on China, right, it was other countries
where we weren't certain about a lot of Middle Eastern countries,
a lot of countries that were not close allies. We said, yeah,
(03:47):
we're not. You're not getting these chips either. So there
was a much bigger ban the one with you know,
Middle Eastern countries and other nations. Those those walls have
slowly come down under the Trump administration and this is
a furthering of that strategy here. The other relevant point
that I want to make about this is just is
it two weeks ago now, maybe three you had this
(04:08):
new Google Gemini AI tool come out and like, cool,
it's slightly better than chat GPT. From what I understand,
that's not the relevant piece. The relevant pieces that Google
apparently trained this thing on semiconductors that they developed in house.
That is the claim from Google. I don't know why
they would lie about it. It would seem that would be
pretty misleading. I think that's been pretty much proven out.
(04:32):
And so when you take all of these things in
context together, you look at the Trump administration decision and
you say, okay.
Speaker 4 (04:40):
Google was able to develop this stuff.
Speaker 2 (04:42):
Seemingly pretty quickly. How far behind is China from doing this?
Speaker 4 (04:49):
Right?
Speaker 2 (04:49):
I mean, it's not like Google was working on this
in twenty nineteen. Basically two came around and they saw
how much progress that chat GPT had made and said, oh,
they might have been working on semiconductor development. I'm sure
they were working on AI, but they did not have
this lightning focus, this laser focus on the generative AI,
(05:09):
the large language model. And so the fact that probably
over the course of three years they were able to
put this focus on there develop a semiconductor that can
train this thing, I think is relevant to this conversation.
The conviction of this company and this individual in Texas
who was funneling these chips to China illegally and you know,
(05:29):
allowing them to get access to them, I think is
another acknowledgment that hey, these bands might sound.
Speaker 4 (05:35):
Good to our voters, but might not actually be doing anything.
Speaker 2 (05:39):
And then furthermore, we have this pressure from Nvidia saying, hey,
either let us sell this stuff to China or they're
going to develop their own homegrown industry. I start to
understand the reasoning why the Trump administration has gone this direction.
Speaker 3 (05:51):
I'm not sure that it ties together all that neatly,
in just the sense that it's worth looking at just
how sophistic these chips are relative to the ones that
are being used to train the large language models that
we're looking at today, which are majority the Blackwell chips,
like the most recent advancement that we've seen, and to
(06:13):
step back for a second, probably explain, Nvidia is the
designer of the most sophisticated chips that help power for
any listeners out there that I've used chat TPT, that
I've used Gemini, those models are trained on chips that
were either designed by Nvidia or, in the case of Gemini,
the TPUs that Mike was referenting before, which are Google's
in house chips. Those are two and a half times
(06:35):
four times better performers and more sophisticated than these h
two hundreds that we're speaking of here that China has
not had access to but now supposedly is going to
have access to sooner. So from the schools of thought,
initially there was the Biden administration idea of we should
just not have any of these sophisticated chips going to
(06:57):
China at all, and that's why there are several behind
when you look at the most advanced cutting Jai chips
out there. There's also been an argument made by Jensen
Wang of Nvidia that, No, it's better for them to
be in our back pocket in a sense and have
China more reliant on our chips.
Speaker 4 (07:13):
Have them be a buyer exactly, have.
Speaker 3 (07:15):
Them be a buyer so that they are just committed,
committed to using our chips. That way we control their
access to them. And ultimately you're right from a policy standpoint,
this is a clear shift by opening the door to
that a little bit more. But it is worth noting
still a lesser version of those chips and prefer is
(07:35):
not a Google tie in.
Speaker 4 (07:37):
Here is my question. Can you name one industry, any
one technology or industry that has ever made the argument, hey,
we need to go to China because A it's a
huge market and B we don't want them to develop
this stuff on their own, and has successfully gone to
China without having their IP intellectual property ripped off and
(07:59):
then a du you know, a duplicate industry homegrown in China.
The only one that I can think of is Boeing.
The only company in the world that I can think
of in the history of American or you know, European
companies who have ever said, hey, we need to go
after the Chinese market a because it's a huge market
(08:20):
and b because otherwise they're going to go do it
themselves and has actually been successful. And Tesla did it,
Starbucks did it again, not that I think Starbucks has
some great intellectual property, but even there, they went to
China and now Luck in Coffee is eating their lunch
because they realized that this was the case. Solar panels
(08:42):
cars Like, I'm just trying to think of what track
record here we have of being successful in this, and
I cannot think of a single industry or company other
than planes.
Speaker 3 (08:55):
And is that maybe because and I don't know the
history on this, that China wasn't ask committed to commit
a lot of capital to development. It's not a very
profitable business to run. The manufacturers make money on the
airplane engines and the parts, but the airlines itself. Just
maybe there wasn't as much emphasis on China.
Speaker 2 (09:12):
Because if I'm China, I'm probably thinking to myself, Okay, great,
I can get my hands on these Nvidio chips now.
But it is an absolute arms race to be able
to do this my own because the next president of
the United States can shut off my access to these
Age two hundreds.
Speaker 3 (09:26):
But also, Mikey, we have to make the point here,
I don't think China wants to have access to them.
From a policy standpoint, there's gonna be significant. That's why
I would I know it's the lead of the show,
but I would argue it's almost much to do about nothing,
because Okay, you're permitting these chips to be sold to China.
They don't want them, or they're gonna take a very
hard stance on allowing them to the country. Why don't
(09:48):
they want them because they want to domestically develop a
solution themselves.
Speaker 4 (09:51):
Yep. So they're also worried about spying national security.
Speaker 3 (09:55):
Well, prior to the.
Speaker 2 (09:56):
United States, i'd put some tools to spy on china
today's things, so I'm guessing we do.
Speaker 3 (10:00):
They're leaning on that to further their you know, messaging
that hey, this is why we should not be so
reliant on these.
Speaker 2 (10:07):
But I would agree, you create a shortage and hopefully
your economy will innovate a solution to that shortage. And
that's what I think they're hoping for here is even
if we can buy these, we're going to set pretty
strict limits on how many companies are allowed to because
we want a homegrown.
Speaker 3 (10:20):
Che Yes, So you look at the domestic provider in Nvidia,
Do I think they get a huge boost from this
from a revenue perspective? No, not really enough to see
what the stock is doing today, I don't think it
was moving tremendously amount in the pre market. And yeah,
they're they're flat, They're down two thirds of a percent,
and then China's not going to allow for many people
to buy them. So where do I think the more
(10:41):
interesting question is where do you stay on the side
of just restrict any technology from them at all? Or
is it hey, we'd rather them in their back pocket.
That's the hard question.
Speaker 4 (10:52):
And is Blackwell next?
Speaker 3 (10:54):
Right?
Speaker 2 (10:55):
If I'm Jensen Wong, that's you know, okay, yeah, put
it on my calendar for January tenth. I'm going back
to the White House and trying to convince them that
we need to sell the black Well Well.
Speaker 3 (11:02):
What's interesting is a group of US senators has introduced
legislation that would delay this by thirty months. For these
two hundreds, that's gonna be light years behind. They're already
talking about the Rubin after the black Bell. So if
you delayed thirty months, this is like ye total non
good point.
Speaker 4 (11:15):
Uh.
Speaker 2 (11:15):
The the final interesting points that I'll bring up on this.
In Nvidia earlier this year, via kind of a handshake
agreement with the White House, agreed to voluntarily pay the
US Treasury a quarter of all sales to China. Remember
that well fifteen percent of revenuee percent of revenues on
the H twenty, which is a water down version of
(11:36):
these eight two hundreds. So presumably there's you know, going
to be some higher volume of these sales to China
and they are willing to pay the US Treasury. There
is absolutely no uncertainty that the White House has no
authority to tax exports, like it's one thing for you know,
(11:57):
for for tariffs to be levied by the White House.
There are some legal press since they're there is zero
legal precedent to tax exports none whatsoever, and constitutionally it's
a real question. But it was pointed out to me
by somebody that yeah, sounds great, but who's going to
sue here?
Speaker 4 (12:13):
Right?
Speaker 2 (12:14):
It's it's not going to be in Vidia. They agree
to the deal. What standing do they have to sue?
You're taxing some other companies, So I'm going to sue
the government? I don't think so?
Speaker 3 (12:23):
Is that how they're they're administering through a tax. It's
not just like a revenue.
Speaker 4 (12:28):
What's the difference.
Speaker 2 (12:29):
Yeah, so two things can be true to me. One,
it looks like this, you know, handshake agreement, were it
to be enforced by the White House, would be very illegal.
And Nvidia, if they brought to court would absolutely be
able to say we don't have to pay this, But
at the same time, probably has no incentive to bring
(12:49):
it to court because the only way they're able to
sell these things.
Speaker 3 (12:54):
Or zero.
Speaker 4 (12:55):
Yeah, let's take a quick break.
Speaker 2 (12:57):
A lot more AI stories to cover here, and in
particular a big earnings report this week that will be upcoming.
Speaker 4 (13:05):
We'll be talking about that next. On The Financial Exchange, business.
Speaker 1 (13:09):
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(13:29):
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Speaker 3 (13:47):
Thank you veterans for all you've.
Speaker 2 (13:49):
Done, so paul A few I'm gonna say a month
ago there was a bit of a turn in the
narrative around AI. And again it hasn't really continued. There's
been drips of it in the media, but I would
say a month ago the only thing that we were
covering on this show was investor concerns about AI being
(14:09):
overbought and companies getting you know, circular financing deals and
you know, starting to look a.
Speaker 4 (14:16):
Lot like the dot com bubble.
Speaker 2 (14:18):
I will also acknowledge for a minute that most of
the conversations about that have gone away over the course
of the last couple of weeks. I don't hear that
mentioned nearly as much, but Barons here points out that
we'll have a pretty good test of that narrative tomorrow
when Oracle goes and reports earnings. And I think they're
right in so far of one thing, which is this
(14:39):
is one of those companies that is on the periphery
of the of the AI trade, right they have these
deals with AI companies.
Speaker 4 (14:49):
They are not one themselves.
Speaker 2 (14:50):
They are a computing company that briefly benefited quite a
bit from some of these announced deals, but over the
course last month they've lost eight and a half percent
of their value. I think are even more over the peak.
I mean, talk to me about where this has gone
over the course of the last few months, because it
has been pretty wild.
Speaker 3 (15:11):
Incredible ride. So to set the context, you made the
good a stew point that it did seem like over
the course of the last call it month and a
half to two months, there were more and more stories
and concerns being raised about the amount of infrastructure spend
within artificial intelligence and are there is there going to
be revenue to justify that. A month preceding that, you
(15:33):
had probably the peak of sort of the optimism behind
some of the artificial intelligence deals, where Oracle announced a
three hundred billion dollar contract with open Ai, the makers
of chat TPT that would begin in twenty twenty seven,
and their stock that day soared about thirty percent just
(15:54):
within one day of announcing that news. The stock was
at two hundred and thirty eight dollars to share on
the close September eighth, and it closed on September tenth
at three hundred twenty eight dollars a year today or we.
Speaker 2 (16:06):
Just paused there real quick. So the deal that was
announced was how much money for Oracle?
Speaker 3 (16:11):
Three hundred billion dollars of future revenue commitments for a
five year contract with open Ai beginning in twenty twenty seven.
Speaker 4 (16:17):
Got it?
Speaker 2 (16:18):
And just to be clear, open Ai, the privately held
company that created Chat GPT, according to most estimates that
I'm seeing, is expected to generate revenue in twenty twenty
five less the numbers.
Speaker 3 (16:30):
Eighty thirteen, but it should close it like.
Speaker 2 (16:31):
Twenty Okay, yeah, so twelve to thirteen to maybe twenty billion.
So you are talking about commitments that they are making
to one single company that are somewhere in the range
of fifteen to twenty x their annualized revenue.
Speaker 4 (16:44):
Got it corep going.
Speaker 3 (16:46):
So from there you see Oracle stock today at two
hundred twenty dollars a share, so lower than it was
prior to that announcement in September. What is what has
happened over that span of time? It's exactly what Mike
mentioned in tern terms of the revenue from Chat, TBT
and open ai. Is Oracle is what does it entail?
(17:07):
That three hundred billion dollar deal well, Oracle is going
to do the heavy legwork to build out all the
infrastructure that open ai is going to lease the computing
capacity for them. So we talk a lot about in
the show's data center construction. Oracle is going to be
behind getting the shovels into the ground, getting the chips
into the data centers, to build out the infrastructure that
open ai will lease from them. Well, it's a little
(17:29):
concerning when you have a three hundred billion dollar commitment
for a contract for a company that's doing twenty billion
dollars in revenue that's eventually going to lease your computing spaces.
Are they going to have the money to pay for it?
Are they going to have the money to be able
to come up with that commitment? And these data center
commitments are significant. You're talking about building out four and
a half gigawatts of computing capacity. What does that mean.
(17:52):
That's like the state of Virginia or Massachusetts in terms
of the residence, households, electrical consumption building out these data centers.
It's a huge commitment. So we bring this forward to today. Tomorrow,
they're going to come out with their earnings. These deals,
some of them are for the future. We just talked
about before. But the question is are they executing, are
they converting on them? Are they realizing the revenue and
(18:13):
getting infrastructure growth on their cloud development from other users.
That's what we have to look at tomorrow. I don't know.
Speaker 4 (18:20):
Really for that.
Speaker 3 (18:21):
I was a little surprised Mike with this piece, like
how much are we really going to get tomorrow?
Speaker 2 (18:25):
So, for instance, the deal with open Ai, it's a
five year contract beginning in twenty twenty seven. Right now,
there's a boatload of worth in Oracle needs to do
ahead of time in order to start getting that revenue
in twenty twenty seven. Don't get me wrong, But what
are they going to say other than if you can
going ahead and it's something great.
Speaker 4 (18:42):
If you don't.
Speaker 2 (18:43):
If they say, oh we hit a few stumbling blocks
and we're not sure we're going to be able to deliver,
then you know, all bets are off and this if the.
Speaker 3 (18:49):
Infrastructure stuff gets delayed, that would really hurt them big time.
The benefit they would receive is, hey, we've got other
people who are interested, We're growing.
Speaker 4 (18:56):
Yeah.
Speaker 2 (18:56):
Commit if they disclose new big customers, if they come
out and say, you know, also Xyz company has replicated
the open aideal and we are looking to be in a.
Speaker 4 (19:05):
Good spot, then that's a different story.
Speaker 2 (19:08):
But if we get more of this, Oh yeah, we're
going to be providing computing power to this company, and
in exchange, they're going to be giving us semiconductors that
we're going to buy from that same company. Uh yeah,
we'll see how the market reacts to that. One quick break.
Wall Street watches next and then we're talking jolts.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street watch a complete look at what's moving markets so
far today right here on the Financial ex Change Radio Network.
Speaker 5 (20:02):
All Right, stocks are a little change as investors await
Wednesday's FED decision. The Dow Jones is up two tenths
of a percent, The S and P five hundred is
up point zero nine percent. The Nasdaq on the Onion
is down point zero six percent. Right now, President Donald
Trump said the US will allow in Vidia chip to
ship its H two hundred intelligence jeez, it's eight h
(20:25):
two hundred AI chips to China and elsewhere. The US
will get a twenty five percent cut for the sales
which are only allowed for approved customers, and Vida is
currently down just over half a percent. CVS shares are
up over three and a half percent after the company
provided twenty twenty six profit guidance that came above Wall
Street estimates and this year's projected earnings, marking a sign
(20:49):
of steady progress in its turnaround plan. Home Depot shares
are up just over two tenths of a percent after
the home improvement giant issued weaker than expected earnings growth
goy ID for twenty twenty six. AutoZone shares are down
four percent after the automative parts retailer reported worse and
expected results for its fiscal first quarter. AutoZone posted earnings
(21:12):
of thirty one dollars and four cents per share on
revenue of four point sixty three billion dollars, and a
list polled expected a profit of thirty two dollars and
fifty one cents per share on revenue of four point
six four billion dollars. And finally, drone maker aero Vironment
is up one point three percent after it was awarded
a eight hundred and seventy four million dollar contract from
(21:33):
the Army for Unmanned Aerial Systems and counter UAS Systems.
I am Ben Kitchen and that was Wall Street watch.
Speaker 4 (21:42):
Man Ben from the sounds that you need to get
in the zone. That AutoZone joke. You don't get a
lot of those, dyeah.
Speaker 3 (21:50):
I'd say ouch, but I did really appreciate it.
Speaker 2 (21:53):
We received a report this morning at ten a m.
Paul on the state of the labor market back in October.
So I'm not gonna call it completely relevant, but a
little bit irrelevant.
Speaker 4 (22:02):
At this stage.
Speaker 2 (22:03):
But this follows on the What was the Job's report
that we did get was that the September jobs report,
So this is data collected for October, a little bit
more current and to me kind of reconfirms a few
of the things that we saw there one in September.
I'll acknowledge that the labor market did we both saw
(22:23):
an increase in the unemployment rate, but also an increase
in the number of hirings that took place, And I
think this report kind of coincides with that. Where in
October you did see a slight increase in the number
of job openings. It was pretty much unchanged, but it
was a very small increase in October to seven point
seven million. Job openings and the discharges, quits, layoffs, et cetera.
(22:46):
Were pretty much flat for the month of October as well.
So this is clearly not a report that the FED
worries about from an inflationary perspective. But to me, you know,
if you're the Fed, you're meeting right now and making
your decision on interest rates tomorrow. I don't think any
of this, anything in this report would sway me from
(23:07):
my decision to lower rates by a quarter of a
percent tomorrow when they go to announce that decision.
Speaker 3 (23:13):
No, I don't think that that would be the case.
It does look like we still sit at a eighty
eight percent probability according to CEMEA futures that we will
see a rate cut at tomorrow's meeting at two o'clock tomorrow.
We get the info in that, but this doesn't change
that course at all.
Speaker 2 (23:30):
In October, the rate of quits was a little change.
It was two point nine million. The rate was one
point eight percent. It was down though the quits rate
is down by about two hundred and seventy six thousand.
Speaker 4 (23:42):
Over the year.
Speaker 2 (23:44):
Specifically, the quits declined in accommodation and food services, healthcare
and assistance federal government. In addition to that, the total
separations were down, specifically in healthcare and social assistance again
and the federal government as well.
Speaker 4 (24:03):
Layoffs.
Speaker 2 (24:05):
Again, I don't think it's worth notable really seeing anything
there because you're just not seeing big layoffs according to
this report. If you go ask challenge your grand Christmas,
they would tell you another story. But again, we're not
seeing any big new moves here, and so again it's
backward looking. It's not telling us anything about this week,
or last week, or even anytime in the last month.
(24:27):
But I think what it does deliver for me is
some certainty that in October you did not see any
big surprise moves in the status of layoffs, hiring, or anything.
Speaker 4 (24:37):
Else along those lines.
Speaker 2 (24:38):
So if you've got a job, you're probably still pretty
incentivized to try and keep it because you're worried about
the state of the labor market if you're currently unable
to find one. I don't know that anything about this
report is going to make your life easier. Agreed, do
we want to talk about now? Let's keep on the
AI train for a moment here. So what happened after?
(25:03):
Is that what the AI chance? You would think that
the AI train would have a slightly more modernized horn,
don't you, rather than like a steam horn. It might
sound a little bit more like my four year old.
Speaker 3 (25:13):
Son that we played train tracks every night. So you know,
I'm kind of kind of ingrained in my AI model
here that runs at a very low power.
Speaker 4 (25:20):
That's at your request, I assume, yeah, exactly, get down here,
we're playing trains.
Speaker 2 (25:25):
Uh So when Gemini three, Google's new large language model
was released that pretty much the same week, Sam Altman,
the founder of open Ai, came out and put out
a quote code red for his company.
Speaker 3 (25:37):
I'd be so pissed about Sam Almon and that came out.
Who leaks that that? I said, code read? Because it's
been referenced a bunch. Yeah, and it's very self explanatory
what it means.
Speaker 4 (25:47):
Oh, I'm not sure.
Speaker 2 (25:48):
I think Sam Altman loves that kind of attention, you do, Yeah,
I tend to think that he loves the idea of,
you know, being publicized as declaring it a code read
from my I.
Speaker 3 (25:57):
Just picture like a big red buttonized desk. Yeah, we
all do.
Speaker 2 (26:01):
It's a Simpsons type situation going on. But in either case,
open ai is set to release a new model called
five point two, which like, at least you give me
some whole numbers in the numbers. So anyway, five point
two model this week. I think that if that thing
does not knock people's socks off, then there's gonna be
(26:21):
some more pressure on this company. I would personally not
be looking to release something new until I'm pretty confident
it can outperformed Gemini, but nonetheless they're going about that.
Speaker 4 (26:31):
And I'm just kind of the Google move on.
Speaker 2 (26:36):
This announcement was really big for a number of reasons,
but to me, the biggest one is not about Google
or open Ai. It's about the idea that with enough
determination and clearly a lot of money, Google was able
to do this. They were able to leapfrog the first
to market provider out there. Now, maybe it doesn't move
(26:59):
the needle because there is some advantage to the you know,
first to market when it comes with.
Speaker 3 (27:04):
Eight hundred million active weekly users for chat TBT.
Speaker 2 (27:09):
But on the other hand, it's not Deepseek, it's not
some Chinese AI startup that nobody's going to download the
app for.
Speaker 4 (27:19):
This is Google that.
Speaker 3 (27:20):
Has a lot of brand recognition that.
Speaker 4 (27:23):
People are day that it was released.
Speaker 2 (27:25):
It was automatically updated on my phone because I have
a Google phone, Like, they have a built in user
base here that I think they can quickly catch up on.
And guess what, so does Apple, so does Meta and
so the the story that I'm focused on is are
we seeing the commoditization of large language models? Are these
(27:46):
things just going to get better and better, cheaper and
cheaper and more and more competition, And in which case
where does.
Speaker 4 (27:53):
That leave Opening?
Speaker 2 (27:54):
Like I see where that leaves Google, right, they have
this built in user base. It's part of their overall infrastructure.
They can to be spending this money. I don't know
where it leaves open Ai and their verbin Ai doesn't
have another business.
Speaker 3 (28:05):
They're vertically integrated Google is. They have the chip design.
We talked about that earlier in the show. They have
the data centers. They have a ton of training data
because there's been billions, I don't know trillions of searches
runs over the years on their interfaces. And like what
you said, they have the user base too. They have
billions of users of the Android phone, they have billions
of users of all the apps that they have. So
(28:27):
that's what's been the biggest fear, and that's all we've
talked about in terms of this open AI or this
artificial intelligence arms race. The concern that I have on
the model front on CHATTPT that this article dives into
a little bit, Mike, is when you have a business
in panic or co reed, we'll call it, some of
the guardrails will start to get put down a little
(28:48):
bit in attempts to catch up. And I won't try
to go too into the weeds here, but some of
chat TBT has leaned a little bit more on user
feedback to sort of generate the best responses. And the
problem can be if you're not leading on professionals or
other ways to confirm different responses, and you're leading on users,
(29:11):
you can kind of get this the cycle going where
you're giving users what they want and that's not always
the best thing. And we've seen some scary cases of
this in terms of mental health and psychological impacts of
users that have kind of lost themselves within these large languages.
Speaker 4 (29:28):
Don't worry about that. We'll deal with that twenty years
from now, like we are with social media now.
Speaker 3 (29:32):
Very true.
Speaker 2 (29:33):
Let's take a quick break. When we come back, I
don't know if I can keep going on on more A.
We gotta go, Paramount, Let's go switch over to the
pending hostile takeover and the knife fight that's going to
occur over at Warner Brothers.
Speaker 4 (29:49):
That's next.
Speaker 3 (29:49):
The Financial Exchange text us.
Speaker 1 (29:52):
Six one seven, twenty six to two one three eight
five with your comments and questions about today's show. This
is the Financial Exchange Radio Network. The Financial Exchange streams
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to date on breaking business news All morning. Long Face
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Speaker 5 (30:16):
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(30:39):
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Speaker 2 (30:47):
So last week we covered the announcement buy Netflix and
WarnerMedia that WarnerMedia had accepted Netflix offer for most of
their company was at twenty seven dollars seventy five cents
per share and included everything but the TV networks Turner
Media TV Networks. Since then, there has been a just
(31:11):
firestorm here about where this is going to go. Apparently
Larry Ellison, founder of Oracle close ties to the White House,
made a pretty quick call over to the White House
explaining his concerns regarding the acquisition and anti competitive nature
of it. And then this week we've had David Ellison,
(31:34):
who runs Paramount now expressing those same concerns and also
bringing the vote on the deal directly to shareholders. So
Paramount also made an offer for Warner Media. They wanted
to buy the whole shebang, and they wanted to do
it at thirty dollars a share.
Speaker 4 (31:54):
And Warner turn them down.
Speaker 2 (31:56):
They basically said, you know, we're going to be left
with a better by going with the Netflix deal here,
because we're still going to retain some assets that we
can sell later. Some expertise that I've seen has thrown
out you know, a value per share of thirty one
to thirty two dollars per share, given the legacy assets
that Warner will hold on to and then probably sell
off to another buyer. I think a few things are true. One,
(32:20):
Paramount really wants this deal to happen. I don't think
they want to compete with Netflix in the movie studio business.
Paramount does currently own a Hollywood movie studio. I don't
think they're already facing a lot of competition from Netflix
releasing their own movies. I don't think they want more
competition in that space. They seriously don't want the additional
competition with from a streaming well.
Speaker 3 (32:42):
Because they needed for the streaming big time yep.
Speaker 2 (32:45):
So they you know, Netflix here would very much solidify
their grasp on the streaming business as well, and so
they're going to make their pitch.
Speaker 4 (32:55):
I think a few things are true.
Speaker 2 (32:56):
One, I do think that this would be a much
faster deal for share holders that care about that, you know,
for Paramount to come in here and buy the whole company,
probably you're not going to.
Speaker 3 (33:06):
Have as much on the anti test concern side of things.
I don't think, because Paramount's kind of the three or
four player in the streaming space.
Speaker 2 (33:14):
Yeah, I'll argue, I'm not sure you shouldn't have more
as much scrutiny on it.
Speaker 4 (33:18):
They own their own.
Speaker 2 (33:19):
Movie studio, Like, you're going to see further consolidation there,
but I don't think you will larger because of the
ties to the White House and some pushes there too.
You're buying the whole company, so I think it would
close faster, and so that might be appealing to shareholders.
But honestly, what I hope you see is a bidding
war for this. I don't think that either can really
afford to dramatically jack up the price. But then, you know, hey,
(33:44):
if this is going to get really ugly, does Apple
step in and just say, yeah, we'll take it, like
we've got the cash to pay for this thing, and
you know, leave you both high and drive. It would
be interesting, That would be fascinating to me. But it
is going to continue to get uglier, I think over
over the next few months.
Speaker 4 (34:01):
Here.
Speaker 2 (34:01):
It's possible by the way that Netflix just gets scared
away from it. They're like, they could just say, you
know what, anti trust, we don't want to get on
the wrong side of the White House. We're just going
to back away from this deal, but they seem pretty
deep into it and I don't think they're going to
go that.
Speaker 3 (34:14):
Well, that's what I'm wondering, because so Netflix came, that
deal was about eighty three billion dollars and then you've
got Paramount coming in a one hundred eight billion dollars. Now,
granted it's not apples to apples because of the some
of the asset differential, but assuming your Netflix, you probably
have to come close to meeting that bid. How much
higher do you want to go? And I have no
idea how high Netflix wants to go, but you make
(34:35):
a fair point. It's already a very significant increase from
where its offer was, granted with some additional assets as
part of it.
Speaker 2 (34:42):
But or does Netflix just say, hey, we're going to
buy the whole thing, and part of the agreement will
be to spin it off ourselves, so we'll find the uh,
we'll find the buyer for this business, rather than you
having to find the buyer for the business. Like any
of those things are possible, but needless to say, this
is going to be entertaining.
Speaker 3 (34:58):
So you also you also of the other wrinkle that
David Zaslov, who is the CEO of Warner Brothers, felt
as if this is speculation, to be clear that there
was rumors that they thought that he would be treated
more fairly and Netflix. If Netflix was to acquire Warner
Brothers and sort of keep him in a role for
(35:20):
a significantly longer period of time and have a lot
more job stability than he would perhaps run an interest
in which you can't have if you're selling your company.
Speaker 2 (35:29):
You got although if that were the only incentive, then
you would have gone to Comcasts and sold to them
because they're going to make him the CEO of the entire.
Speaker 3 (35:36):
It's that balancing act of like you have to maximize
sharehold of value and ultimately you got answer to the board.
And that's why this is going to become really problematic
for him. When you've got a bid that's significantly higher.
Speaker 5 (35:47):
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Speaker 4 (36:52):
Paul.
Speaker 2 (36:52):
We do have the announcement from the FED coming tomorrow afternoon,
so we'll be covering it on this show on Thursday.
But one piece I find interesting options traders bracing for
a pretty big swing in stock prices. You can measure
this by the implied volatility moves, I'm not.
Speaker 4 (37:08):
I suppose.
Speaker 2 (37:10):
That the commentary could catch investors by surprise, but the
announcement itself does not seem to me like it's going
to they're going to cut by a quarter percent and
they're going to I mean, what are they going to
say other than we're gonna wait and see and.
Speaker 3 (37:24):
It's going to be a high bar for us to
maybe do another cut. To me, like that print that
today and it.
Speaker 4 (37:31):
Doesn't win it does anybody surprise anybody whatsoever? I can't.
Speaker 2 (37:34):
I'm not sure why the investors are buying all these
options on potential volatility here, because to me, it's fairly
clear what is going to happen unless I'm missing something
on all.
Speaker 3 (37:43):
Unless they were saying we're not cutting, that's the only
you know.
Speaker 2 (37:47):
What could be interesting is you've had a few votes
now where FED members have been diverging on opinion, and
if you have a significant divergence of opinion here, like
you know, three voting members saying no.
Speaker 3 (38:00):
Three quarters of a percent cover.
Speaker 2 (38:01):
I'm saying half cot like that would potentially, you know,
really shake up markets a bit, so potential for some
volatility coming this up tomorrow afternoon, rather quick break, a
lot more to cover in the second hour of the
Financial Exchange.
Speaker 4 (38:15):
We will be right back
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