[music]

Welcome to Yahoo Finance's morning

brief. I'm Julie Hyman joined today by

Dan D. Francesco, an anchor for Business

Insider and executive editor of the

Business Insider Today newsletter. And

Yahoo Finance's Jake Connley is with us

once again, guys. Um, we're seeing

futures pointing higher this morning.

So, I guess the big the great tech

selloff is done. Feels dish for the

moment. Palanteer is helping matters

this morning. Um, Alex Karp as usual,

colorful on the call, calling calling it

an otherworldly quarter. Um, he loves to

dunk on the haters. It's it's definitely

a big pastime of his. Um, US commercial

sales at Palunteer up 149%, government

sales up 90%, the company raised its

forecast. Um, and the stock is rising

this morning after underperforming this

year. I think it's interesting too if

you look in the context of that

underperformance it kind of got swept up

in the software selloff SAS apocalypse

>> and Palunteer never really to me made

sense as part of that whole

>> you know being lumped in with the

service nows and and sales forces of the

world so you know it is expensive but

that but we'll get to that. So, first of

all, you know, anybody's takes on the on

the numbers themselves?

>> I mean, to to quote Alex Karp, they are

pretty staggering, I think was one of

his words. Um, our own Josh Lipton

actually got on the phone with Karp

yesterday to talk over the quarter,

heard the same kinds of points. I was

looking at a 5-year chart of Palunteer

uh this morning. And if you look at from

when the stock went public up until like

2023, mid 2024, it traded below $10 very

steadily. And then in 2024ish, it just

explodes upward because the commercial

business started working, because AIP

started working, because Silicon Valley

decided that it valued government

contracts of that size. And you kind of

saw the Alex Cart moment of this

brainchild of mine is finally coming

alive. And he's just been kind of riding

that high ever since. every quarter,

even if the stock pulls back, we seem to

get really good numbers out of this

company every single time because their

product, and I have to give them credit

where credit's due, their product,

especially on the government side and

really on the commercial side, too, is

just so bought in.

>> Like I think about it like the Bloomberg

terminal in the financial world. If

you've moved your company onto

Palunteer, you're staying there and

there's really not another competitor

that can offer the kind of data analysis

they can at scale. And it seems in

government they're spreading it across

the different agencies,

>> which is also ironic because his big

pitch is AI sovereignty.

>> That's right.

>> And not getting locked in to the models,

right? And that was been his big

argument. He had the big viral interview

where he was freaking out about like we

can't get locked into these models. You

can't get locked into these models. You

know, you can't give your IP and your

data away. And you could say this is a

win for them, right? And a sign that

people are hesitant to lock into an

OpenAI or anthropic or a Gemini and that

instead they kind of want to work with

the layer that sits above. But to your

point, it also goes the other way where

then you are locked into

>> and they want buy in%.

>> I I want to quote from Karp on the call.

He praises Palunteer customers for not

choosing to become, as he says, quote,

vassal states of the language labs. This

has been his argument. We cannot let

ourselves get locked in. To your point,

that's exactly what Palunteer needs for

its business to do well, right? for them

to be locked into their to them

>> to theirs where they say they're model

agnostic

>> but they're benev benevolent uh

overlords is [laughter] what he I don't

I mean it's interesting because

Microsoft is the same um you know or or

I should say Amazon excuse me AWS also

is sort of model agnostic and flexible

>> plugandplay your model of choice

>> you know it's unclear like I know he's

like praising them praising clients for

that unclear if that's why clients come

to them or if they just come to them

because the software works and it's very

effective and it helps knit together all

of their data and it's not because I

mean maybe that's sort of a a side

benefit but it doesn't seem to be the

main reason necessarily that uh the

clients are choosing them. I don't know.

But again, like um a Morgan Stanley

Morgan Stanley analyst, I can't get my

words out today, says the bare case on

AI native competition is overstated. And

I think that that feels right, right?

Like in other words, is somebody going

to vibe code a replacement for

Palunteer?

>> Yeah, I I don't maybe in 10 years, but

today absurd, doesn't it? that that that

argument when the whole uh software

apocalypse was happening SAS apocalypse

and the idea that like oh Salesforce is

going to disappear or um you know uh day

force is going to disappear JP Morgan is

going to no it's never I'm sorry maybe

I'll eat my words and I'll be happy to

do that if this happens sure if you are

a fivep person startup I absolutely can

understand you could vibe code your CRM

you could vibe code your HR whatever the

case may be if you have 10,000 20,000

30,000 100,000 employees you're not

going to vibe quote something because

even the money you might save on the

subscription that you are really hate

paying you're going to have to make up

when something bad happens you don't

have the benefit of going to your

customer service rep that you can go

talk to now you got to talk to your vibe

coders and be like okay figure this out

oh well we have to go back to the vibe

>> who may not understand the code

>> right and what has AI been proven really

bad at with coding security which is

really really important for something

like Palunteer those certifications you

get from the government to be able

handle classified information do not

come lightly.

>> But it makes me think of palent the

thing I always think of when I think of

Palanteer which is their original

innovation that a lot of people have now

copied is this whole model of forward

deployed employees. The way they got

into the military was not by going to

the you know chief of the armed forces

and saying here is our great software.

They sent engineers out to work with

soldiers on the ground and say look we

can make you faster and smarter and

better. That's why the company started

winning those contracts. And now you see

other software companies trying to do

the same thing, sending their people

into the field. And it's a reminder that

Palunteer was a bit ahead of its time.

And I think you have to give it credit

there. And that's also part of that you

can't vibe code someone who's sitting in

the field alongside somebody explaining

exactly how to do something and how.

>> And they do that on the commercial side

now. They have a boot camp for AIP. when

they sell it, they go into the company,

they spend a few days with them saying

like this is exactly how you use it,

>> which seems pretty useful. Okay. So, so

we can agree like useful product.

>> The debate now I think and has been over

the valuation, right? So, the stock even

with the stock down 29% year-to- date,

the forward PE is over 80. The price to

sales is over 60. By either of those

metrics, it's in the top 10 most

expensive in the NASDAQ 100. Now Louisie

De Palma who I'm going to talk to um

later today of William Blair he wrote in

the context of the valuation for other

AI ecosystem winners Palanteer's

valuation seems reasonable.

>> So but that does seem to be the the

debate now like is it reasonable is it

worth it you know is it who do you

compare it to? Do you compare it to the

sales forces of the world? Probably not.

>> Do you compare it to so what so what do

you compare it to then if you're looking

at valuation comps? I don't even know.

Yeah, it's tricky. I think ultimately

the fact that they're still continuing

to drive growth. They're still

continuing to have this huge commercial

pickup kind of extending beyond the the

original source which was kind of their

strength in governments. Um it kind of

gets this bigger narrative which is

investors want to see the AI investments

that are being made kind of turn into

real revenue and turn into real business

opportunities and they're as evident by

their earnings yesterday are a perfect

example of that. So that kind of gives

them the benefit of the doubt. So talk

about like being ahead of their time.

Like okay, maybe you don't like the way

the valuation looks, maybe you don't

like the numbers, but if they're kind of

in this new echelon, this new world

where this is kind of how we need to

look at these AI ccentric companies,

then all of a sudden maybe it starts to

look a little bit better. I mean, that's

the the pro case for it, I guess you

could say.

>> Yeah. And there are a lot of stands out

there for for volunteers, right? Like

they definitely

>> that company has its when you talk about

like the the upurge in the stock. I

mean, it also has a a strong retail

following. Very very strong. So that's

that's part of the story.

>> And Alex Karp himself has a strong cult

following of people who who think he's

brilliant. I mean, he's he's the what

was the book called? Uh the philosopher

in the valley. Yeah. He's the

philosopher in the valley.

>> Yeah. Um speaking of um retail fans,

let's talk about the next one here. That

is SpaceX because um the company sent a

report after the close of uh of trading

today. Perhaps overshadowing that is the

first trunch of the lockup expiry for

the shares which that happens Thursday.

Um, so I guess let's talk about the

earnings for a second here because I

mean nobody who's buying SpaceX is

buying SpaceX because of its earnings

today, right? But, you know, we'll look

to find out what's going on with

Starlink. Um, the capex number is going

to be important like it has been for all

of the AI companies. Um, is Musk going

to say anything about a merger with

Tesla? Maybe. He sort of alluded to it

on the Tesla call. So, like these are

all the questions that we have

>> if we want to put some numbers on it.

Citing Melissa Otto from S&P, uh, SpaceX

capex numbers now expected to grow from

48.7 billion this year to 118.4 billion

in fiscal year 28. Overall debt

projected to grow from 41.7 billion this

year to over $218 billion in fiscal year

2028.

>> Those are huge numbers. [laughter]

>> And I get it. The company spends a lot

of money on very frontier technology. If

you look at that that TAM that they put

out when they went public, 97% of that

is on the AI bulk case they're making

that there is going to be the return on

investment. But to your point, Dan, I

think the question people have to start

asking about the stock is nobody's

buying this for tomorrow. We're buying

it for 10 years, but at some point

you've got to see some kind of real

investment, real revenue coming into the

business, real success on that side.

That's why I think the Starlink number

is going to be so interesting because

agreed like ultimately as you said

you're not buying now or selling now

because of these earnings. But that's

the commercial engine as of right now.

The the one day commercial engine of

SpaceX. So how those numbers perform?

What's the subscriber growth? What's the

revenue per customer? What are the

margins? If that remains strong that

buys Elon and CO time to continue to

chase the rockets, continue to chase the

AI, continue to chase everything else. I

think the other thing that's really

interesting is, you know, SpaceX via

XAI, massive compute footprint. Massive.

Like they have this huge Colossus 1 and

two out in the Memphis area. What does

it want to do with that? Right? It has a

deal right now with Anthropic to rent

out some compute. I think it works with

Alphabet as well, but it's kind of the

catch22 a lot of these companies are

going through. Do you sell off or rent

out some of your compute for those

short-term benefits that benefits your

bottom line or your top line or

whatever? Or do you keep it for

yourself? you don't get the help as far

as the business, but it helps you train

up your models and all that because we,

as we know, compute is so tough these

days. So, that'll be another really

interesting conversation is how does

Elon kind of handle that and navigate

that conversation,

>> right? Since we know Grock is sort of

like also ran for now, right in in that

whole area, I really loved um a comment

from Bernstein put out a preview know

Douglas Harnid is the lead analyst on

that and he says the company needs to be

clear on how the dream is being

translated into reality. That's right.

Right. That's what you know that and I

think like we you know a lot of people

have sort of connected the the

theoretical dots. Now we need the actual

dots to be connected. You know, we know

they're going to do another test of the

rocket to see if the arms can catch it.

I think that Elon Musk recently

commented um on on X about that, you

know, but you know, we need like the

lines colored in, you know, what are

they going to do with our computer?

[clears throat]

>> Elon Musk is good at anything. He's good

at selling a vision.

>> This is his sweet spot, right? He runs

an EV company that doesn't

[laughter]

>> company. It's a robotics company. He

spent this, you know, the past couple

years telling us how Tesla is not a car

company and now he's got to do it with

SpaceX. So, look, love him or hate him,

if there's anything Elon is really good

at, it's kind of spinning a narrative

and keeping investors excited about

what's going to come next. And I think

we'll definitely hear that on the

>> Yeah. And I guess like when he says like

he asked to how is the dream going to

become reality like

>> I mean I guess I you know I've said for

years like you need more like he makes

lots of promises he doesn't fulfill but

clearly nobody cares. But but in I mean

but to the other side of this is the

stock has done terribly. That's right.

Right. Terrible.

>> Down 50% from the highs.

>> Yeah. Exactly. The IPO price remember

was 135. We're trading well below that.

Um and you know you could easily argue

like who cares about the earnings. The

lockups are coming and the stocks the

stock's dead money until we get past all

of the lockups which won't happen until

December 8th. So it's coming in let me

see one two three four five six seven

eight tranches of these releases. I

don't know if we had the graphic made

that shows like the various steps of all

of these

>> 100 billion I think right on Thursday

maybe up for 100 billion

>> yes 100 billion 100 it's about 911

million shares it'll bring it'll bring

there's there it is so you see like all

of these different steps until we get

finally to about 40% of the company's

float uh being available for trade from

what is it 5% or so today. So, you know,

you could argue like, well, if we're

going to see these periodic potential

waves of selling, why, you know, why not

wait until clos

I I want to point out Morgan Stanley

>> originally came out as the biggest bull

on Wall Street for this stock? Looking

at a price target of $300.

A couple days ago, Morgan Stanley's Adam

Jones comes out in a note and says,

"Shares could realistically, and I quote

there, realistically fall to $100."

Now, is there a path back to 300 if all

of this works? I think Elon would

certainly argue that way. But it does

strike me as a bit crazy to see the

spread of the view even just inside one

bank of the extreme bull to the extreme

bare case.

>> Right. You mentioned Tesla. What do you

very koi didn't mention SpaceX at all on

the Tesla earnings call? He'll obviously

get pressed on it. Do you think he

dances around it? Because that's kind of

the the elephant in the room. Everyone's

wondering about him talking and I guess

curious who who's upset or who's happy?

Are Tesla investors happy if they get

acquired by SpaceX or SP? What do you

think?

>> Yes.

>> Yes.

>> Tesla investors are happy. Yeah. Because

Tesla's also not done,

>> right? But they will lose control

because he's got 80% control of the

shareholder votes in SpaceX. That's not

true at Tesla where he's got like 30 40.

>> Do you really think Tesla investors care

about that? That's a feature, not a bug

for people who at least who are real who

are the Musk faithful, right? Um, I have

to wonder like, and I know that Elon

Musk doesn't care about regulators, but

I do wonder if he's constrained at all

>> about what he can say if it's something

that is seen as manipulating Tesla's

stock price.

>> That's fair, too.

>> I don't I don't know what the parameters

are around that. And again, I don't know

if he cares.

>> Right. Right. Yeah. I I guess I just

wonder with a deal like that, then it

becomes like I mean, SpaceX already is a

bit of a Frankenstein, right? you have

the social, you have the and now you

throw in Tesla now it's like you know

you do a lot of you do a little bit of a

lot but not a lot of anything and like

does that upset I mean ultimately I

guess it more resources everyone's under

the kind of Elon umbrella the the Musk

economics maybe you're happy with it but

I do think it's interesting but yeah you

do bring up a good point about like

regulatory wise maybe his hands are tied

a little bit

>> yeah but you see the benefit you get the

terapab collaboration with Tesla in

there there's a lot of good for the

business that could come just in terms

of to your

collating resources.

>> Yeah. And he's also argued that Tesla is

an AI company, right? So then do you put

the AI stuff together?

>> But to the Frankenstein point, here's my

question going to this, and I love your

take on this, Dan. Who's the competitor

for SpaceX right now? Is it like a

Verizon and AT&T? Is it AWS? Is it Blue

Origin?

>> All of the above now.

>> Yeah. Well, and that's the thing, right?

Like it's doing so many different

things, right? Like technically now

Plaid is a competitor, right? because

XAI has this page payments platform. So

it's like everybody's an enemy but also

everybody's a friend. I suppose this is

the everything app also the Neoclouds

right

they're selling comput which to get back

to the stock performance that becomes a

tricky thing for analysts investors

because like how do you value this

company that is like a little bit of

everything

>> does everything.

>> Yeah. Especially since he argues this

the the whole is more than the sum of

the part.

>> Okay. And very critically does

everything in very expensive businesses.

>> Yes.

>> All right. Well, I'll take that

opportunity to segue to an expensive

retreat that Open AI sent some

influencers on. Open AAI summer camp um

was something that just happened. You

guys um Business Insider wrote about it.

So, basically, OpenAI seems to have sent

a bunch of influencers to this um very

fancy resort in the Hudson Valley,

right? Um where they ate amazing food

and they had a beekeeping workshop and

they had AI workshops. Um and the

internet is very upset about this whole

affair.

>> It's not taken well.

>> Yeah. Yeah. Ben and Adidi did a great

job on this kind of getting a sense of

how it went down and then kind of the

internet backlash. I I will say this,

not to this is not meant to downplay

this, but people being upset at

influencers for going on a brand trip. I

do kind of question

>> what what would you expect? They are

influencers. This is this is this is

kind of the job and that's not giving

them a pass, right? I think there's

levels to this. They mention in the

story that a couple years ago a bunch of

I think it's beauty influencers went to

Sheen and they went to what was very

kind of like a whitewash like oh this is

our perfect factory when the reality is

maybe not so nice and they got a lot of

heat for that that I I understand this

though I think that um we can be

critical and we should be critical of AI

and the impact it has on the environment

the impact it has on security the impact

it has on privacy but if influencers are

the people you're hoping to take a stand

I you maybe need to reassess,

>> right? Or criticizing the company itself

for sending people. Of course, they're

this is their marketing. This is what

they're doing. This is what they're

they're going to try to sell. I think

the bigger idea here to me is just the

ridiculous amounts of backlash we see

against OpenAI, against anthropic.

Again, I keep thinking of those videos

we all saw of graduation ceremonies in

May where someone would get on stage,

Eric Schmidt would get on stage and

mention AI and the whole crowd would

boo. And it gets to a point that Sam

Alman has, to his credit, noted in

public. They really have a credibility

and a a vibe and

reputation problem is what

>> So maybe they're partly trying to fix

it.

>> I'm not going to call it whiteashing,

but to the influenc they're trying to

get into the younger demographic trying

to explain maybe this isn't a job

killer. Maybe it's going to make your

life easier and better. But it's a tough

cell. I thought one of the influencers

her sort of like defending herself and

saying like I think AI is a good thing.

I think it's going to help us. I thought

that was interesting. I mean the other

the other angle on this is like OpenAI

eventually is going to be a public

company. If you're a shareholder, do you

want them spending their money this way?

Maybe you do. Maybe you think it's what

money well spent and that this is

something brands do. But you know it's

just something it's a question.

>> Talk so much about the ROI in the AI ROI

on

I wonder what the total budget was for

this. It's got to be

>> it's got to be minuscule, right?

>> Uh I don't know compared to their

overall numbers.

>> Yes. Yes. Agreed. Agreed. Um all right.

And then finally, um an interesting

company that was out with its earnings

this morning is Caterpillar. And I've

been really focused on Caterpillar

lately because it got downgraded

recently over at Baird and the analyst

there said maybe this data center

backlash that we're talking about is

going to be material at some point like

if if we're going to see projects pull

back.

>> That was not evident anywhere in these

Caterpillar numbers.

20 billion.

>> Exactly. So record 20.5 billion. Sales

up 24%. The backlog was up 92%

year-over-year. They had higher volume.

They had high higher prices. Earnings

per share beat by $2.

$2. That is amazing. Including a tariff

recovery of 65 cents in that earnings

per share number. And they also um

they're coming out and saying their

fullear sales and revenue growth would

be in the mid to high teens. So

>> y

>> like the share and the shares are up

12%.

>> Construction segment sees 35%

year-on-year growth. Power and energy

sees 17% year-on-year growth.

>> Even with the bare case from Baird, it's

clearly not showing up. And it gets to

something you and I, Julie, talk about

all the time. Dan, you're an ex

commodities guy from what you tell me. I

know you you'll get what I'm saying

here. AI is a, you know, a tech and a

software story. Yes. It's so much a

physical story. There is so much

infrastructure and any of the GE Vernova

verdive you know a company like digital

realy caterpillar

>> if this demand keeps going if we keep

seeing these center and it's a big if

but if we keep seeing these data centers

getting built that is just so much good

business for the companies that actually

build that equipment

>> build it keep it cool maintain it keep

it secure

>> HVAC is suddenly a great business to be

in oh my lord

>> yeah I talked to the train technology

CEO last week and their their business

is is

>> I've got a buddy in HVAC booming. He's

so happy to be

>> Well, it's so funny. I mean, I I have

two young kids deal with a lot of

parents and hearing a lot of, "Oh,

sending my kid to trade school. Forget

college, sending my kid to trade

school." I have some friends in the

trade trades. They're I'm always

interested to hear them if they're

getting like new recruits, if they're

new young people that are coming in.

>> Are they?

>> Um, yeah, they they are. You know, I

have a friend that's a that's a plumber

down here in the city and and he's in

the union and he gets some it he said

that it's starting to change the

demographic, the types that are coming

in cuz it's, you know, a lot of the

trades are very much a family business.

Like his dad was a plumber, his

grandfather was a plumber. It's kind of

like in the whole family line of

business. And now you're starting to get

some new faces. Um, which is

fascinating. But yeah, I mean, look,

this is it's like the old cliche. It's,

you know, the the the picks and shovel,

pickaxe and shovels, right? This is it.

This is it. You know, they don't have to

worry about all right, they just got to

build it and then, you know, see you

later. It's, you know, text.

>> This is the definition of if you build

it, they will come. Right. Exactly.

>> I I also thought it was interesting. So,

um, Caterpillar has really become a a

power and energy company. Um, much more

so than people realize. We just think of

it as like selling backhoes. Um, that

that segment was up 17%. But actually

construction to your point outpaced it

in the quarter and is a little bit

larger than it. Again, they those have

been sort of running um neck and neck.

So, it's the construction for this

stuff, but it's also the equipment to

power all of it. And this also speaks to

there was a story in the journal today

about how so much of our GDP is now

accounted for by both both by

construction of data centers and the AI

economy and also the stock returns.

That's right. Because of it, which is so

interesting.

>> That's right. It really has become the A

I mean, this is a Josh Schaefer point,

RX colleague. You really can't call it

the S&P 493 anymore because really AI is

the S&P 300, right? Right. It's so much

of the economy is now tied to this and

this is where you get the bare

projections of, you know, if the bubble

pops, everything's falling. But for now,

if and until we get that kind of

reckoning, this is just powering every

single sector of the economy. We saw

manufacturing data out yesterday really

outperform expectations. We're seeing

good numbers in that sector of the labor

market. We're probably going to get good

manufacturing jobs numbers on Friday.

It's just pulling so much of the economy

forward.

>> Well, I think that gets back to like the

influencer thing, which is you can be a

critic of this, but to just kind of the

people that put their heads in the sand

like we're just out on AI completely.

It's like, well, how's that going to

work? Like, like realistically, how's

that going to work? How did the internet

work? We have to figure out a way to

make it work. But just to outright be

like, we're done. I don't want any part

of it. Okay. Well, there goes our entire

economy because like it or not, as you

say, it's entirely built on this big

bet. So, we don't need to. It's not

doesn't mean we can't be critical of it.

It doesn't mean we can't raise concerns

with it. But to outright say I'm washing

my hands of it now. That's Yeah.

>> Yeah. Thanks so much, Dan. Appreciate

it. On that note,

>> Jake, thank you as well. And that

doesn't work.

Heat.

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>> Tuesday is for momentum stocks.

Palanteer is ripping higher in the wake

of its earnings report. The move sure

makes sense to this guy. The company

crushed the souls of the Bears with its

results and it offered up a materially

raised fullear outlook. Here's what

stood out to me from the always

entertaining Alex Karp on Palunteer's

earnings call.

>> Palanteer, we are at the front line. We

are in the front of driving this

revolution. I am driving the business to

grow at a rate equal or above to what we

have in US commercial for the next 18

months, which is a very high goal, but

it is one we can actually get to because

we are fully aligned with what's right

and what's good and what actually works

well in an enterprise. Good for you,

Alex Karp. If you are obsessing over

Palanteer this morning, head to

Yalifines's homepage right now. One

number on Palunteer caught my attention

and it's my Alphaspace stat of the

morning. Next up on the clock for Momo

stock earnings day is SpaceX. This will

be its first earnings report since going

public in June. The street is expecting

a colossal loss from the company. I

wonder how that will be received at the

stock has tanked more than 50% from the

highs. Perhaps the OB roundt knows just

that. Schwab Asset Management CIO and

CIO Omar Agalar is here. Lee Munard

Portfolio Wealth Advisors President CIO

is back in the house and Yao Finance's

very own Brook Depal is dropping in as

well. Lee Lee coming to you. I want to

start on Palunteer if you like this

quarter from Palanteer and should you

ride this momentum?

>> You know, I think you should. Um, even

my 14-year-old son was was buying this

stock ahead of earnings, right? Um, what

I love about this quarter is that it was

the cash flow that proved this is a

profitable company. When you look at

free cash flow, this is very different

from the Palunteer that we saw a few

years ago. Um, this just goes right

after Microsoft last week showing

there's a great return on invested uh,

you know, all the AI centers, all the

chips, everything. And now we're seeing

that software, I mean, if you just look

at the government stuff, it's through

the roof, but we knew government

contracts were going to be enormous.

What I love to see is I like to see that

US commercial sector just going higher

and higher. So outside of hedge funds

blowing up, outside of momentum just

dropping, I think you can be long with

Palunteer. Just remember it's a high

multiple stock and it's all about this

beat and raise beat and raise, but right

now it's a bit unstoppable.

>> Omar, how do you even value a company

like uh like a Palunteer? I mean, it's

trading at 85 times forward earnings. I

mean, it's it's a discount to its

historical average of around 195 times.

Like these are big multiples. What do

you do with a company like this?

Yeah. Well, you know, normally what we

do with evaluate, you know, precisely

the growth trajectory and it's not

necessarily just about one quarter. It's

really more about, you know, their

outlook. It's about their earnings

projection. And in many cases,

particularly for these kind of AIdriven

companies, we basically look at where

their profitability is going and and and

I think in in this particular case, the

return on investments and return on

equity seems to be going in the right

direction. I think a lot of what happens

is you have to separate growth companies

from the rest because at the end when

you're looking at investing in growth

it's really more about you know how you

see that EPS growth going relative to

what you expect for your ROIs and I

think in this particular case what has

transpired especially with all AI

related stocks is that a lot of the

adoption that we all fear was not going

to happen seems to be proven incorrect.

In other words, you know, a lot of the

AI adoption that everybody was was

talking about, you know, at the end of

last year, it seems to be happening. And

I think these companies, these software

companies, these developers continue to

profit from it.

>> Omar, that's a really great point. And

Brooke, I'll put that one to you because

as we've gone through this earning

season, of course, the hyperscaler

earnings last week, big cloud numbers

out of Amazon, Microsoft crushed it, uh,

Palanteer crushed it, raised outlook.

We're going to have AMD earnings today.

They're going to crush it, too. this

narrative coming into earnings season

that AI wasn't being monetized, that it

was peaking in terms of demand, none of

that has proven true.

>> Yeah. The AI jitters, the fear that the

return wouldn't be worth how much all

these companies are investing within AI

was the major worry among so many

analysts heading into that. And now

we're hearing hearing some relief so to

say from so many on the street saying

that right now what we saw was that

there is this parabolic US demand for AI

solutions. That was what one DA Davidson

analyst had wrote in a note this

morning. And and I think really the

proof is in the pudding here. We're

seeing this demand really come to

fruition here. We're seeing the proof

points that Palunteer's CEO, Alex Karp,

had pointed out. And I was mentioning to

you, Brian, this morning that this

really was somewhat of a a rally cry on

the earnings call last night, saying,

"Don't stay on the sidelines. Get in.

Get in on this momentum." And it seems

like the proof right there, especially

as Lee pointed out, we got that US

government uh revenue jumping 90% to 809

million for the three months uh through

June 30th. And so really the proof

points are coming to fruition here, sort

of pushing away that fear that Wall

Street had that we won't necessarily see

the return. But I think the big question

will be will SpaceX really, you know,

step up to the podium here and and prove

this ongoing proof points that many are

putting out this quarter. Lee on on

Palunteer. This is a stock that

historically people have ignored the

valuations on. They ride the momentum.

But if you're looking at this Palunteer

quarter, is this now your justification

to get back into other Momo names, those

other momentum stocks like a Micron,

like a SanDisk that have been absolutely

hammered the past month?

You know, I think that's a great

question. You want to go back into the

degenerate gambler trade. And I think

that right now, if I was just a day

trader and I was just screwing around

for the next month or so, I'd probably

think the coast is clear. Let me tell

you what bothers me about momentum.

Nothing about earnings. Earning season

is great. You're going to have to have

an external shock. You're going to have

to have oil matter not to ride this

momentum. Oil doesn't matter. You're

going to have to have the Fed not raise

rates or make some suggestion that

inflation's going to come and get you.

And we're not going to see that until

September. And so I think all the things

that we're concerned about killing

momentum outside of more hedge fund

leverage going, you know, and blowing

up, you're going to have a, I think, a

decent August because it's September

where rates may start to matter. It's

September where oil may start to matter.

Between now and then, what do you have?

If you have bluebirds and lemonade and

everybody telling the tale of guidance

couldn't go higher, earnings couldn't be

better. And if there's any companies out

there that don't just in the slightest

bit dazzle us, they're going to go down.

>> Omar, have you been dazzled by this

earning season?

It's been amazing just to see especially

because the first quarter was very

strong and I think having these you know

beginning of the second quarter earnings

being so strong you know continues to be

supportive of you know just the idea of

the capital spending cycle that we all

talk about at the beginning of the year

seems to be proving you know that in the

earnings numbers. So this uh big

question that everybody had of the

amounts of capital expenditure and how

much that was going into different parts

of the market you know seems to be you

know driving a lot of these earnings

field. Uh on the other hand you also see

that the consumer spending continues to

support you know continuous growth for

these earnings. You know it's kind of

interesting when you look at you know

GDP nominal GDP growth that is very

correlated to earnings growth and that

seems to be proving correct again

despite all the noise and all the

volatility that has gone into that. So a

lot of that resilience of the US economy

is actually now you know going into

earnings growth and that has been I

would probably say surprising for most

of us but you know very very good uh as

we go into the second part of the year.

Omar, is the Fed likely to spoil this

party we have witnessed in the markets,

let's say the week and a half as things

have stabilized. We got Fed speak

starting to come out after that Fed

meeting last week and then oh yeah, we

have a Jackson speech that we are unsure

how Kevin Walsh presents this. He was

asked how he's thinking about uh this

last week at the Fed meeting. He didn't

say anything. He said I haven't even

started to put pen to paper yet.

>> Yeah. Well, it's it's it's it's

definitely a big question because this

is a new Fed and there is clearly a lot

of different trends and a lot of

different um values that goes into those

decisions and those discussions. Um I

think the the the hurdle for raising

rates is still pretty high. When you

look at the the uh the drivers or what

decisions are on monetary policy, you

know, we are going to get the labor

market report at the end of this week.

We're going to actually see these

continuous strengths in GDP growth. When

you have, you know, good growth, when

you have, you know, the potential for

these stability of housing and a and a

very resilient consumer, you know, it is

very hard for, you know, things to

suggest that there will be an

inflationary pressure that will put in

there, especially when you're starting

to see commodity prices, you know, going

on the ne on the downtrend. So when you

start to see that inflation pressures

are stabilizing, you know, the decision

by the Fed of raising rates without a

clear spike in inflation, I will find it

a little harder, you know, for them to

justify.

>> Leah, I find it so funny, you know,

coming into Monday's session, everyone

was focused on bond yields, but now

Palanteer's out, the stock's ripping,

and life is so good. I think people need

to stay focused on the bond market. Lee,

>> I do, and I'll tell you why. Um, this is

a lot like something I saw many decades

ago when everybody's waiting on the Fed

to do something and it can lead to

leverage. You know, we saw back in 90

1998 when you had the big crash in in in

August, the Fed had started cut cut to

try to shore up the banking system back

then. You fast forward to today, I think

what the Fed has to do, which is

counterintuitive, they've got to show

some raises rather than cuts because

what they have to kill right now is that

spectre of inflation. Because let's be

let's be real, Palunteer, if rates go up

another 25 or 50 basis points, is that

going to kill Palunteer's earnings?

Absolutely not. Is that going to kill

AI? Absolutely not. But if we don't get

inflation under control, it's going to

kill consumer sentiment. It's going to

kill the ability for the consumer to

feel confident and that's what you have

to worry about. Again, we're gonna see

Jackson Hole. Guess what? This Fed chair

is going to say less than prior chairs.

He's saying, "I'm not going to give you

information. You're just going to have

to play the data." Now, I prefer that

personally, but it's going to be a big

adjustment for markets. And if you're

looking for anything that could be a

catalyst to bring more volatility where

you might be able to get some of these

names at cheaper prices, it's going to

be a Fed induced drama from lack of

communication, which he's already says,

I'm going to lack it. And number two,

the street wants a raise, not a cut. And

I think that's a fundamental idea we

haven't seen in decades. And I think

it's counterintuitive. It's going to be

hard for people to to get their arms

around.

>> Amen, Lee. All right, my round table is

sticking around. We're just getting

warmed up. A McB block quarter out of

McDonald's. More on this one next.

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>> bottom line right off the top here. I

don't think this quarter out for

McDonald's today will reverse the

year-to- date stock slide that has been

Mc ugly. The stock is down about 13%

this year and it's justified. While

McDonald's beat on earnings, it missed

estimates on sales. US comparable sales

only rose 8/10en of a percent due to

pressure traffic to the Golden Arches.

With a result like this, I'm immediately

thinking the Burger King comeback is

intact as it blitzes the airwaves and

social media messages of improved

ingredient quality, especially on the

Whopper. Brooke, you were covering

McDonald's results. What's your take

here?

>> Yeah, heading into support city's John

Tower. He's an analyst there and he said

that this was somewhat going to be a low

water mark and that's exactly what we're

seeing. We're not seeing much movement

in the stock, but it sort of is

McDonald's setting the table once again.

They just announced that next strategy,

and we heard some things on the call

from executives about what exactly could

have gone wrong here. They said that

one, the roll out of their new value

menus maybe wasn't as well portrayed or

well put out there as what they had

anticipated, that franchises didn't

really return from there. They also said

that there was too many deployments

within the quarter and that led to a

rough spot for restaurant operations.

They said that increased wait time and

also uh caused uh customer satisfaction

scores to go down. And on top of that,

you also had these marketing campaigns

that McDonald's and analysts were really

hoping for to outperform that didn't

exactly go as planned. And so now once

again, this is McDonald's sort of

setting the table once again uh within

this quarter. They have an investor day

in the end of September. And they also

named a new president here in the US.

That's Sky Anderson. She's been with the

company for about 26 years. And so it

seems like they're s sort of putting

together the puzzle pieces to see what

their next growth strategy is to see how

that strategy unveils itself and also

with beverages that was supposed to

really be a huge moment within this

quarter and it sort of got outshined but

what exactly maybe didn't go exactly

right.

>> Sounds like a MC turnaround is needed

here. Omar uh Brooke brings up a very

good point. Uh they relaunched the value

menu. What does it say about the state

of the US economy Omar that folks are

having trouble uh affording the value

menu? To me, this is c classic K-shaped

economy. You have stock markets at high,

higher earners are making more money.

Yet, there are large sums of people out

there in this country that can still not

afford a value menu.

>> Yeah, this is a very uh good example of

that K-shaped economy that we've been

talking about and also the inflation

impacts on you know different types of

different parts of the consumer

spectrum. Uh we have seen and we have

talked about the fact that the high-end

you know consumers even just the middle

size of that the consumer piece that set

of second and third quintile of the

consumers and the earnings you know of

those consumers they seem to be doing

very well. A lot of that is also being

supported by the wealth effect coming

from equities coming from other parts

even housing. uh but it's really just

the bottom 20% of the consumer that

seems to be going into a lot of stress

and those are the typical consumers for

McDonald's. Those are the typical you

know consu consumers that will have

potential issues with credit you know

those are the ones that are feeling the

pressure on the gas prices. They're the

ones feeling the pressure of you know

you know worrying about their job and

worrying about the wage growth. And I

think these, you know, earnings will

probably prove that these this

bifurcation and polarization of the

consumer spending will affect those

companies that tend to to to target most

of that low end of of the consumer. And

I think in this particular case, that

seems to be the case. Lee, let me take

through this. Uh, a disappointing quote

on McDonald's. Wendy's shares still

under pressure. Reportedly had put

itself up for sale. Nobody wants it.

Jersey Mike's comes out. IPOs last week.

Uh, not a great reception to that one,

though I love their subs and the bowl.

I've never tried there before. And also

Papa John's, uh, also reportedly on the

sales block. No one has stepped up there

to buy that company either. Am I missing

something here in terms of value? Is

there value to be had in these beat up

restaurant stocks?

I don't know because you're going to

have to like provide the consumer who's

more discriminating these days. I

totally understand why you don't have

any takers. So, let's get beyond the

K-shaped economy. This isn't like 2008

where people just stopped going out to

eat, period. What the consumer is saying

is they want a deal. They're

discriminating on what it is. And so if

you're a company that's just had stuff

that's cheap, that's not really going to

cut it anymore. So your marketing is

going to have to be much better. Your

food, your product's going to have to be

much better. And these companies that

you're talking about, they just are

third string when it comes to quality,

when it comes to delivering. So as you

move forward, a larger place like

McDonald's, they have the size if they

can turn it around to actually give

people and market to them properly. What

we saw in this last quarter is

McDonald's completely screwed it up and

just did not execute right. But if I was

going to look in here, I would just look

someplace else because for the

foreseeable future, you're going to have

a consumer that's not only under

pressure with no relief in sight,

especially with oil remaining high, but

you have a consumer that wants so much

more to induce them to buy. And I think

that just makes a very difficult

operating environment. And that's why

you see places like a Wendy's, you know,

nobody wants to touch it because nobody

knows how to turn it around in this type

of K-shaped economy.

>> Well said you guys. All right, I have a

simple question of the day and it's of

course SpaceX related as we await the

company's first earnings report as a

public company even amidst the post IPO

plunge. Are SpaceX shares still

overvalued? SpaceX shares a forward

enterprise value ratio of 105.9

times per Yahoo Finance Alpha Space

Data. Love Alpha Space. The outsiz ratio

reflects Wall Street optimism that

SpaceX will turn a profit in 2027 due to

strong demand for its Starlink services.

Speaking of optimism, of the 34 Wall

Street analysts that cover SpaceX, Alpha

Space data shows 27 rate the stock a buy

or a strong buy. Liam coming back to you

here. Are you optimistic SpaceX turns a

profit next year?

>> I think it's all about Starlink. I

wouldn't even jump in that. You know, if

Starlink really shows huge subscriber

growth and it really hits it in America,

I guess I could see some type of, you

know, accounting trick where they start

making money. But right now, short term,

everything's going to be judged by

Starlink because it's providing that

cash for Starship, which is the big

rocket thing. I think what what's going

to matter in this quarter is not so much

about are they going to be profitable.

They want, you know, investors have got

to see Starlink increasing

subscribership. But here's the thing,

it's about guidance and it's about how

Star Ship is coming along. Longer term,

Starlink isn't going to cut it. They

want to see these little rockets go up

and the rockets go down with heavier

payload so they can do the next form of

this satellite internet connectivity.

And until that happens, I think the

stock is dicey. So, you can't put all of

your all of your basket on Starlink and

its cash flow. You got to make sure they

they cross every little milestone with

this new rocket system because if not,

it's just going to be spending billions

and billions and billions of dollars and

eviscerating all the good work that

Starlink does.

>> Brooke, the other wrinkle here is

Thursday, that's when insiders could

start to sell SpaceX shares. And this

view, Brooke, that oh 900 million shares

are going to magically come to market in

one day. All the insiders are going to

dump SpaceX. No matter what this company

reports, that's just not going to

happen. And that's not how it works.

Yeah, Deutsche Janka actually said in a

note this morning that that's one of

their significant worries here that

right now all the focus is not

necessarily just on what exactly we're

going to see when it comes to their top

and bottom line this earnings report and

their guidance when it comes to capex

but they're also saying that the main

issue is this tactical fear of that

lockup period expiring here that's about

12% of total shares that will become

available they also are just saying that

the uncertainty around the AI business

is something that's also weighing on

investors minds And on top of that, you

have the complexity of a potential Tesla

merger. I mean, question mark, is that

still happening? Will that ever happen?

And so, I think there's right now just

these background fears that investors

have around the company and that's why

we've seen this major pullback within

the stock price, especially since their

IPO.

>> Omar, last word to you. What do you tell

the retail investor that that got in on

SpaceX near the top? They were just

captured into all that enthusiasm,

captivated by Elon Musk, captivated by

the early investors out there hyping the

stock.

Yeah. Well, most of our education is

when it comes down to IPOs, you know,

tend to be, you know, around time

horizon. You know, we have evidence and

we have done a lot of research basically

shows that when you're just in the part

of trying to get into an IPO early to

try to flip it, you know, the majority

of the time you don't actually uh end up

on a profit. So a lot of that re has

resulted in your long-term you know

horizon and thinking about precisely you

know what the company's you know

earnings uh path will look like. uh we

expect that the first few quarters of

any IPO you know company will probably

be volatile and it will probably be more

about the leadership about outlook about

you know sales growth uh projections

about what they're going to be the path

for potentially generate the this cash

flow that is so needed for these

companies and therefore you know for

retail investors is about being patient

and thinking about like well this is

something that you have to look beyond

even the first you know two years for a

company that actually become like a

long-term investment that is part of

anyone's portfolio. it will be volatile

and we we will see pullback and you know

just the fact that you go into an IPO at

an all-time high because valuation is

there you have to be you know thinking

that there is going to be a growth path

in here whether is through their

different business lines or whether

whether it's just by generating new

ideas you know that's something what you

actually go into these new companies

>> Omar Lean Burke awesome insight on this

busy day I really really appreciate it

Julian Iman has you covering all things

SpaceX and the markets as we get closer

to earnings this afternoon we'll be

right back with Market Catalyst.

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>> Welcome to Market Catalyst. I'm Julie

Hyman. 30 minutes into US trading day.

Let's take a look at the major averages

here today. We are still in the thick of

earning season and earnings are coming

out uh better than estimated uh at a

pretty good clip. About 85% of earnings

that have come in so far from the S&P

500 have beat estimates. That's about 10

percentage points higher than the

long-term average. So, all of that is

helping support what we're seeing from

stock returns here. Right now, the Dow

is up about 530 points here. Um you can

see that's about a percent gain. The S&P

500 is up about 3/4 of 1% and the Nasdaq

Composite is up about 1 and a4% as well.

Getting to the Dow specifically and the

earnings that we've got today. I'm going

to equate it so it's easier to see.

We've got Caterpillar in the poll

position here. 6.5% or 6% gain or so

after that company came out with numbers

that beat estimates. It saw record

revenue of over $20 billion for the

first time on a quarterly basis. And it

is uh basically seeing more demand tied

to data center construction and power

needs for data centers. It makes

equipment for that too. And then we're

seeing relatively broad-based rally

elsewhere. Cisco, Goldman Sachs, JP

Morgan, some of the other outperformers,

Merc, which reported its numbers, which

we're going to get to a little bit

later. If we look at the NASDAQ 100

here, we see quite a lot of green as

well. One big red spot here is Amazon.

Uh those shares are down by more than

2%. Um and getting some reports that

Bezos, Jeff Bezos is selling some

shares. So it looks like that could be

something that is pressuring the stock

there. Um the S&P 500 today is actually

trading at a new record. So what is

powering it there today? It is largely

tech up more than 3%. Otherwise, we've

got kind of a mixed picture here.

Energyy's lagging, utilities are lagging

as well. But at this new uh record high

for it, we can also look at the longer

term and what's happened this year.

Energy stocks, the best performing group

here. We've started to get some numbers

from some of the big oil companies.

They're largely beating estimates. We've

seen energy prices go higher over the

course of the year. XLK is tech. That's

also done well. Industrials, materials.

So, those are the four groups that have

outperformed the S&P this year and that

are definitely contributing to a lot of

the gains that we are seeing in today's

session. Of course, we are also watching

what's going on with software stocks

today and that's after we got numbers

from here. We're still on year to date.

Let's put it back to intraday. Um so if

we go back here and sort of equal weight

what we're seeing Palunteer you can see

all the way up here is up by 22% after

that company came out and beat estimates

um in what was were a lot of

superlatives that were applied uh to um

uh to that quarter by Alex Karp the CEO.

So, let's dig more into that right now

with Louis DeAlma of William Blair who

covers uh those software stocks and of

course uh Palunteer is one of the stocks

you like Louie it's good to see you um

so you know this we've seen really

Palunteer shares get hit this year and

now seeing this big outsiz gain in

today's session do you think this will

put to bed once and for all some of

those concerns that AI is going to

supersede uh the companies the com you

is going to replace it in some way.

>> Yeah, great question. I think this

should be the start of a V-shaped

recovery, something similar that we've

seen across software for certain

subsegments such as software

infrastructure

and different cyber security names. Many

of these names have rebounded over 150%

from their lows related to anthropic.

And that beginning in November of last

year, different trading baskets and

algorithms placed different software

stocks into the AI loser category. And

these stocks were in freef fall for the

the last quarter of 2025.

for the first four months of of 2026.

But there's been a narrative shift for

several of those stocks. And I think you

need to um see this narrative shift for

Palunteer because the company has done

nothing but accelerate um ever since um

this AI craze began in in 2013.

Yeah, I mean it's it is interesting the

sort of um switch that you saw in the

stock to your point sort of like I guess

it was really late 2024 that Palenter

really started to to rocket higher

although it's seen some volatility since

then was that when it sort of reached

this critical mass of of growth

>> yeah it's a great question in terms of

you know what's been um taking place

with Palunteer they launched

AIP

and AIP has gained particular traction

across end market verticals and what's

amazing is like Anthropic has seen like

staggering growth obviously and I think

Anthropic um back in May with their

funding round they disclosed a revenue

run rate of $47 billion

that was targeted mostly for the

enterprise.

But investors should view that as a a

bullish data point for Palunteer is

that's indicative of the total

addressable market that Palunteer is

also targeting. And right now

Palunteer's

US commercial division um has

approximately a $4 billion annual run

rate. But there's the potential that um

you know Palunteer is you know going to

significantly increase that as it's

going after the same workloads as

anthropic open AAI and the other

frontier labs. So that brings up a good

question, Lou, and you wrote about this

in your report because you, as you well

know, the the knock against Palunteer,

you know, among other things, has

largely been about valuation. Like, yes,

it's growing a lot, but man, this thing

is expensive. And you addressed that

today in your note, and you said in the

context of the valuation for other AI

ecosystem winners, Palunteer's valuation

seem re seems reasonable. And you think

that the there's upside to the shares to

the $200 range over the next year. to

that point. I mean that suggests if

you're trying to value Palanteer, you

don't compare it to other software

companies, you compare it to the

anthropics and open AIs of the world.

But I don't think anybody's arguing that

their valuations are reasonable either.

So I, you know, how do you how do you

like contextualize like how much is too

much to be paying for these guys?

>> Yeah. What what's missed in the debate

about Palunteer is how extraordinary

their margins are in that for the

quarter they reported a 62%

operating margin that was up from 47%

last year. And the reason the margin

expanded so much is because Palunteer

hasn't really hired many people on a net

basis. They've they grew their revenue

by 90% year-over-year while keeping

headcount flat and also they barely

spend anything on capex. So, they're a

free cash flow machine. It's it's

actually incredible how capital

efficient they are relative to, you

know, some of the other um hyperscalers

that are, you know, investing

aggressively. Well, Louis, that that

that like actually makes me think of

something that I hadn't really thought

about with Palunteer is where do they

get their compute from then? Are they

just leasing their compute rather than

building it out themselves like like the

hyperscalers are?

>> That that's another great question and

very insightful. Um so they are mostly

utilizing like third-party language

learning models and this is what you

know we honestly missed several years

ago when you know we had a negative view

on on Palunteer in that you know we were

thinking well Palanteer actually does

not own their own language learning

model but it's somewhat similar to the

like Red Hat you know Linux dynamics in

that palent Palunteer is able to connect

their software platform whether it's AIP

Foundry or Palunteer Gotham to a whole

like litany of third party language

learning models. And there's this big

debate right now regarding open-source

language learning models and open

weighted language learning models. But

like Palunteer's customers, they have

access to, you know, dozens and dozens

of these LLMs and and it gives the

customers choice. So Palunteer isn't

investing themselves into the LLMs

right now. Um, and that provides the

flexibility and so they're serving as a

a middleware orchestr orchestration

layer. and Alex Karp used the term

application layer, right?

>> Whatever term you want to use, they're

they're benefiting in a huge way from

this trend.

>> Yeah. And their stock is finally

benefiting a little more today than it

has been uh this year. Louie, um you

also cover SpaceX, so I do want to spend

a moment on SpaceX since the earnings

are tonight and the first lockup expiry

uh comes uh two days from now. Um, does

this earnings report matter for SpaceX?

And I say that for two reasons. One,

because as you know, so much of the

thesis surrounding SpaceX is still kind

of in the somewhat distant future. And

two, we got all these potential sales

coming to market, supply coming to

market of the shares.

Yeah, I I wish I could have joined um

the prior segment debate on SpaceX and

that I I do think um that the earnings

after the close today is, you know, not

as significant as it's being made out to

be from the perspective that, you know,

Starlink in my mind is a given in that

um SpaceX has 12 million broadband and

subscribers for for Starlink is growing

very nicely. It's going to continue to

grow nicely. They're serving the the

whole world over 165 countries with

fiber like speed. You know, it's you

know just like AT&T and Verizon are

telecoms. Starlink is is a telecom. It's

very consistent. the debate and you know

the the controversy

and potential for opportunity regarding

SpaceX relates to Starship and that

SpaceX is trying to develop the only

like rapidly reusable rocket ever. It's

never been done. It's unprecedented.

So the company on the earnings call will

provide details of flight 14 and the

ability to potentially you know catch

the ship as you know what they refer to

in terms of you know catching starship

using their chopstick arms but investors

want to actually see it happen. Elon

Musk will talk about it happening, but

investors want to see it happening. They

want to see it happen rapidly.

>> And we're not going to find that out

tonight whether it's actually going to

happen and whether it would be able um

Okay. So, what what if you had to pick

something though from the that is going

to that we are going to learn tonight

that you think is significant? What do

what would it be? Would it be the capex

number for example? Is that kind of the

other contender?

Yeah, I I think one of the the other

variables besides

um the rapid reusability of Starship

will be the full visibility in terms of

leasing um data center capacity from

Colossus Macro hard and macro harder

because of the the eyepopping you know

lease valuations that SpaceX has been

able to obtain. There has been reports

that SpaceX um will also be able to

lease capacity to the Department of War,

which is a huge opportunity. Um but

investors want to see you know the

durability of these leases because they

were very shortterm in nature and SpaceX

has achieved success in developing its

own LLM Grock in that um you know there

was a a SpaceX lawsuit and a Department

of War official um revealed in a

testimony that SpaceX's language

learning model Grock

was used during the Iran operation epic

fury and so it's being used right now

successfully on on the battlefield but

SpaceX has the decision in terms of

training Grock with its data center

capacity versus leasing out data center

capacity it will be a question in terms

of you know what generates the highest

you know yields in terms of the capex

investment

>> never a dull moment That's for sure,

Louie. Looking forward to all of that

and looking forward to your analysis as

well. Thanks a lot. Appreciate it.

>> Definitely. Great to see you.

>> Me, too. Coming up, what is next for

Leopold Ashen Brener as [music] Citadel

takes the reigns of situ situational

awareness's public portfolio, the

implications for not just him, but for

the markets, [music] too. We'll be right

back.

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>> Heat. Heat.

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Heat. Heat.

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>> [music]

>> Former Open AI employee Leopold Ashen

Brener was hailed as the Nostradamus of

AI. high by some. But as his $45 billion

situational awareness hedge fund levered

up its AI bets, a sell-off in that trade

nearly brought his fund down and with it

a fire sale of public assets to Ken

Griffin's Citadel. Watching it all, was

the reporter who broke the news about

Citadel's purchase. That's Gregory

Zuckerman. He's a special writer at the

Wall Street Journal. And this story

really captivated Wall Street and

Silicon Valley for that matter um over

the past couple of weeks, Greg. and also

kind of, you know, marked a a moment in

the market. And so, as you were covering

this, as you were sort of, you know,

deep in the weeds of what was happening,

you know, how are you thinking about

also how it reflects kind of this

moment?

>> To me, it says we're all searching for

guidance. We're in a period AI is

affecting every job. your job, my job,

every industry out there, and we're not

sure where the future is going to take

us. Here's a guy that emerged to tell

us. He was kind of our sherpa, a young,

well credentialed, did well in school,

great background, openai, FTX, maybe not

quite as much, but he had, you know, he

was well connected and he was telling us

where the world was going, what our

future was, the Nostradamus as it were,

and we're all looking for that. So this

to me is a sign of especially as frankly

kind of older investors are over and

time and time again I've covered this a

lot of times where they are uh eager to

hear what the younger next generation

has to say and he represented the future

for them.

>> Um and where do you think it kind of

went wrong here? I mean you know as you

wrote about the guy had no investing

experience but he did have this insight

into where he thought AI was going. I

mean, it seems to me that works as a

long-term thesis. Maybe it works less

well as a shorter term trading thesis

and certainly a leverage thesis.

Well, the key was leverage, but not so

much just how much he piled on. He did

pile on a lot of leverage. Uh, we

reported four to one leverage for every

dollar he had. He borrowed a good three

four dollars. On top of that, he also

used options that kind of added to the

leverage. But it wasn't just the

leverage. There are a lot of lever hedge

funds, but they usually trade in less

volatile investments, bonds and such,

that kind of thing. So, you could pile

on the leverage if the underlying

investments aren't volatile. But if

you're going to go long short AI related

stocks, it's sort of inevitable that at

some point you're going to have some big

setback that's going to lead to a margin

call that's going to lead to panic.

That's going to lead to what happened

here.

>> Um, Greg, as you did your reporting, did

you also I mean Certainly, there must be

other blowups or losses that we don't

necessarily know about or that didn't

have as big a ripple effect in the

market. Did you get any glimmers of

anything like that?

>> There were rumors, but not enough that

we could report just yet. If people want

to reach out, feel free. Um, nobody's

this big, frankly. No one's grown this

this much so quickly. I mean, the guy

got up to $45 billion in AUM in assets

and up from just a few hundred million

just like a year or so ago. I think

earlier this year is at 20. So, he

doubled it. Uh, nobody's this and all

the leverage on top of that. So, he had

an outsized influence on the overall

market. And you could kind of see that

some of these stocks, I mean, there were

other things going on, too, to be clear.

But you could see when he was under

pressure, they were going down. And then

suddenly when Ken Griffin and Citadel

swooped in and and made their purchase,

the stock started shooting up. Part of

that is short sellers stopped targeting.

Part of it again is short sellers

stopped targeting these stocks and they

moved on to other stocks.

>> Yes. As they always do. I mean, what's

one of my takeaways from this whole um

episode is also hubris to some extent on

the part of Silicon Valley. Like they

embrace this guy because he's one of

them, right? And you know, he's not a

Wall Street guy. He's a sort of an AI

native. Um and it it's a hubris I don't

know, it's an arrogance perhaps you

could use that word that you see applied

to different realms. Um but I wonder if

this, you know, did they pull back? Do

they go back to more traditional Wall

Street hedge funds as a result of this?

Or do they say, "Okay, you made one

mistake. Here's some more of my money."

>> Oh, Julie, I've covered these things

over time and time again. It's it's like

a badge of honor to lose a lot of money

on Wall Street. It's shocking. You and I

and regular people don't really can't

relate to it, but you get second and

third chances on Wall Street. There's

this weird kind of uh pride in losing a

lot of money. Well, yeah, I lost

billions this time, but that means next

time I can make billions. And people

figure you've learned lessons. Uh, yeah,

I don't think he's going away. And he's

got this big portfolio of private

investments, um, anthropic and such that

are doing well. So, yeah, I think he'll

kind of say, I learned my lesson. I'm

24. Give me another chance. And I think

people will. Greg, of course, the other

um fascinating side of the story is the

other side of the train is Ken Griffin

over at Citadel. Um and there were a lot

of um sort of rumors or speculation that

he at least in the you know closing

moments of this whole saga that maybe he

put his thumb on the scale, so to speak,

and maybe maybe caused even more pain

for situational awareness and then swept

in and bought the portfolio. Did any of

your reporting indicate any of that?

There's speculation and accusations. I

have no evidence of that. And it's

always the accusation of of Ken and

others like them who who step in there

uh because there were short sellers and

and who were were shorting this stuff.

But nah, I I haven't heard that. And and

I covered something similar 20 years ago

almost to the day uh Amaranth uh

collapsed, the biggest hedge fund