ISM Services PMI beat, Eli Lilly CFO to join Alphabet: Catalysts

On today's episode of Catalysts, Yahoo Finance's Madison Mills breaks down key economic data and major tech news, from Alphabet's new CFO to AI regulation.

May's ISM Services PMI beat expectations, coming in at 53.8 against the expected 51. Meanwhile, the ADP National Employment Report showed private payroll growth slowed in May. FS Investments Chief US Economist Lara Rhame explains that despite the mixed data, the current economy is strong and adds, "Against that backdrop, there's no urgency for the Fed to cut rates. I think they want to get it done. I think it may not happen until after the election, and today's data doesn't really change my view of that."

Alphabet (GOOGL, GOOG) announced that the current executive vice president and CFO of Eli Lilly (LLY), Anat Ashkenazi, will become the tech giant's new CFO effective July 31. Mizuho Senior Analyst Jared Holz breaks down Ashkenazi's qualifications, explaining, "I think just being able to navigate what has become an enormous company in Lilly ... $800 billion of market cap, trumps every other peer by a pretty wide margin." Bank of America Securities Senior Internet Technology Analyst Justin Post adds that Ashkenazi is joining Alphabet during a "good cost trajectory," as the company beat earnings expectations last quarter and executed small layoffs.

On the AI front, tech employees are advocating for heightened oversight and regulation. Former and current employees from AI giants like OpenAI, Alphabet's Google (GOOG, GOOGL), and Anthropic have released an open letter highlighting concerns about the lack of governance to ensure the safe development of AI technologies. Appian (APPN) CEO Matt Calkins supports the letter, calling it "an extremely responsible step." This comes as Qualcomm (QCOM) is set to roll out Arm-based (ARM) chips in AI PCs.

This post was written by Melanie Riehl

Video transcript

It's 10 a.m. here in New York City.

I'm Madison Mills.

Let's dive into the catalyst moving markets today.

The latest economic data painting a new picture potentially for the fed softer than expected, labor, manufacturing and services, data all reinforcing speculation.

The fed could cut rates this year and of course, more chips news could arm intel and a MD leadership in the PC space particularly.

We're gonna explore how new device rollouts could help arm grow market share in space.

Plus we got to see sweet shake up alphabet Neil CFO as its new finance chief, we're going to discuss how this could change and be a catalyst for you.

I li future and alphabets as well.

But first our top story that we are watching today, fed rate cut optimism really returning at least when you take a look at the moves in markets here softer than expected.

Recent economic data reinforcing speculation that the fed could still cut this year here.

With the latest on.

This is our very own fed reporter Jennifer Burger with more Jennifer.

What do you have for us this morning?

Good morning ma odds for a F rate cut this fall.

Are rising as so that expected jobs data this morning.

Fuel hopes investors now betting on a 57% chance, almost 60%.

The fed will cut rates by 25 basis points.

In September sentiment is shifting from last week when odds were for a 50% chance of no cut.

That month.

The renewed hopes come as the private sector 80 P se jobs report was released this morning showing 100 and 52,000 jobs created in May versus expectations of 100 and 75,000 on account of weaker hiring in the manufacturing and leisure and hospitality sectors.

This report coming ahead of the all important labor department jobs report due out this Friday where economists again expect job growth to cool for the second month in a row in May.

Economists calling for 100 and 85,000 jobs created last month with the unemployment rate holding steady at 3.9%.

Now, Mattie, if this jobs report comes in line as expected, it would be perfect for the Federal Reserve.

Yes, it would still be robust.

But given the influx of immigration, you would still expect the labor market to grow at a robust pace.

Now, if they could just get the inflation side of their mandate to cooper matty, that is of course the million trillion dollar question there, Jennifer, thank you so much for joining us.

That was our very own, Jennifer.

We have some breaking data.

This morning here, May Im Services PM I coming in at 53.8 versus the 51 that was expected.

Stocks are mixed on the news.

The dow is moving to the downside here.

The S and P 500 pairing back some of its gains from earlier today.

Looking at 2/10 of a percent of growth, the NASDAQ holding on to gains of about 7/10 of a percent.

Here.

The market reacting to this data as well as softer than expected private payrolls this morning.

Joining us now to discuss all of the incoming data, we've got LA Ra chief us economist at FS Investments, also joined by David Groman.

He is vice president on the global equity strategy team at City.

Thank you both for being here.

Laura, I've got to start with you a slew of data coming in this morning.

What is standing out to you?

What stands out is the fact that some of the survey data continue to really give us mixed messages.

We have the downside surprise in the manufacturing PM I earlier this week, which really just it gave us a lot of uh I think gave markets a lot of hope the fed was going to be considering rate cuts in the second half of the year, much more seriously.

But today the I the services ism has been stronger than expected.

We really just need to wait for that payrolls number.

I think the message that we come away with today is that surveys are still kind of pointing in multiple different directions and that the FED is going to be looking for the hard data to confirm whether the economy is still hot or whether it's really much at a pace that they can cut rates against.

Yeah, so hard data mattering a little bit more than survey data perhaps for the fed.

David.

Come on in here because as Laura was mentioning, we got to wait for payroll this Friday.

How much market volatility should investors be anticipating coming up on Friday?

Yeah, obviously it's a really important event for markets.

And I think we're really watching the data closely at this point because it really has an impact on what the fed will do and, and rates policy from there.

But I think the the point for us in the way that we're thinking about equities is that yes, the rate cuts will be good for equities when they come, potentially, if they come a little bit later than expected, it could be a headwind.

But ultimately, we are still pretty constructive and that becomes uh the reason for that is the fundamental outlook which still looks really, really strong last year, earning slow down this year earnings looking to be much better.

And we've seen an inflection here after the the recent reporting season as well.

So remaining constructive on the fundamental side sticking with you here, I am curious and I heard a guest say recently that the fed is a reaction function, the market has an over reaction function right now, David, would you say that the market is overreacting to each data print?

Yeah, I wouldn't say that it's overreacting at this point.

I think obviously expectations are, are, you know, faked in it's quite elevated on the earnings side, especially in the US.

But at this point again, the reason that we think that where markets are trading right now still makes sense and why we think that you can still be a little bit constructed from here, at least outside the US again, is on the fundamental side, which I think is an anchor here.

Again, earnings expect to be better and broader.

This year.

We've seen a clear inflection at least in the US and in Europe in terms of upgrades starting to come through now.

So there's a reason to still be constructive for the market to keep moving.

Obviously, these data points matter a lot, but really focus on the fundamentals.

Well, Laura, as you were kind of mentioning, we've got a lot of mixed data here and it's interesting to see what we're seeing in the treasury space.

I'm just taking a look, the two year treasury briefly spiking off of that ism data even though it was pretty mixed.

So interesting to see the reaction in the Treasury space.

What does this do to your outlook for the Federal Reserve?

Does today's data even though it was mixed increase, what you anticipate as the pace of that cuts today said it doesn't really change my outlook, which is that the FED wants to cut interest rates that it may have trouble getting that done.

We have the election calendar which while the fed is independent, let's be honest, it actually does matter and we have the fact that inflation is still stubbornly high.

And finally, I think we, we've talked about fundamentals that's really important.

The economy today looks strong that powers earnings in publicly traded equities, but it's also powering the rest of our economy.

The 200,000 middle market companies that really are the big engine of the US economy and growth are looking good.

So against that backdrop, there's no urgency for the FED to cut rates.

I think they want to get it done.

I think it may not happen until after the election and today's data doesn't really change my view of that.

It's actually a good market right now.

It's a good market right now, particularly in the last 10 minutes of the trading day.

As I keep saying, David, how would you describe what the market is able to do right now?

I keep saying that it is sort of just grinding out gains in that final 10 minutes of the day.

What would your description be of what the market is able to do all of this data?

Yeah, I think when we take a broader view.

I think the thing that's really important is where expectations are and kind of what the market is pricing in for those expectations, right?

So if you look in the US, what our models are telling us is the market is pricing in sort of an earnings outcome that's actually above where consensus analysts are.

So really there is this sort of beat and raise dynamic that is built into the price of us equities.

So again, when we're talking about fundamentals, you really do need to continue to upside there.

When we look at the rest of the world European equities for uh for certain, right, like there are better expectations price in than at the beginning of the year, but they're more in line with where analysts are.

So I think the European market reservoir equity is more fairly priced in the US.

You definitely are still looking for the beat and raise mentality.

And obviously the economic data plays a role in how possible it is for companies to achieve that.

And laura ending with you here, over half the market pricing and a cut in September.

You mentioned the importance of the election though to what extent do you think the election bars the fed from cutting in September?

You know, when you look at the calendar, we are kind of running out of meetings.

I don't think anybody expects them to cut in June.

So it really puts the July meeting in focus if they were to wait until September, that is the meeting before the election.

And I think that does get a little bit tricky politically again.

We would love to live in a world where that doesn't matter.

But I think today we kidding ourselves to think that it doesn't matter.

Uh, I think the fed would like to either think of July or think of sort of after the election and to really manage a rate cut in July.

I think you'd need to see an unemployment rate above 4% and some really kind of low numbers on the inflation piece.

I don't think we're gonna get it.

And I think to the extent that the fed wants to cut rates, going to have to wait and do it in either November or December.

Well, Laura ending with you finally here, the Bank of Canada just cutting rates, the European Central Bank widely expected to cut rates tomorrow.

I'm curious from your perspective, what it means when we start to have a divided world, when it comes to central banks, cutting back on rates.

What does that mean for us in the US?

It's certainly different.

Usually the fed is the leader, not the follower, but you know, it does.

I think the fed is aiming the direction is Dovish.

They want to cut, it's just a matter of timing.

So to me, this really just reinforces the positive fundamentals that are out there.

If our economy does slow a lot.

The FED has room to cut significant.

The fact that they haven't just is really a reflection of the strong economy that are sustaining fundamentals for growth and for company earnings.

All right, we're gonna have to leave it there.

I really appreciate you both joining us.

That was Laura Rae.

She is chief US economist from FS Investments.

Also David Groman, he is city's global equity strategist joining us now, moving on to chips.

Could we soon be seen a new powerhouse in the A I chip market?

That is exactly what arm holdings is hoping for in conjunction with Paul com.

For more.

We're going to bring in our very own dan how Dan so much news on your beat constantly, but this week in particular, so much chips news, what do we need to know about this news specifically?

Yes.

So arm in particular is basically coming out and saying, look, we're going to be the kind of leader in A I PC.

This is a new category of P CS that kind of just got made up.

Uh Basically, it's uh companies like Intel, A MD and Microsoft uh went ahead and said, look uh gen of A I is a big deal.

Microsoft is implementing software into their platform.

Uh And so we need a way to market it.

So we'll call it A IP CS Microsoft kind of reconfigured that now they call it Copilot plus P CS.

Uh Arm uh is moving in swiftly though usually Intel A MD.

Uh they're the launch partners for new kind of platforms like this for Microsoft.

But if you look at what Microsoft did uh at its uh ahead of its build conference, they used Qualcomm chips Arm based Qualcomm chips to launch this new category of computers.

And that's a big deal.

That means that they have full faith in what Qualcomm and Arm can do.

Now, this is the first time we saw Arm on Windows the past few times they've been a flop.

Uh the company just uh had problems getting compatibility with apps.

People couldn't use what they wanted to on their Windows P CS performance wasn't exactly there compared to Intel or A MD offerings.

And so they didn't sell well, but this time, Arm is sure that they have what it takes and Qualcomm is sure uh that they have what it takes to do this.

So now they're saying that they'll be able to beat Intel and a MD chips, uh, as well as Apple's M chips in terms of performance and battery life.

And that's a big deal when it comes to uh people who are going to be buying these consumers as well as commercial.

Look, the, the, the out of the gate.

They're talking a lot about A I and, you know, generative A I offerings.

There's nothing for people to use yet.

Right.

It's, there's a few apps here and there that are interesting, but it's not like the main thing you're going to do on this is generative A I applications.

What you are going to do is use it as a regular PC.

And according to these numbers, I mean, the, the stats that, that Qualcomm and armor rattling off, these could be huge improvements for what Windows P CS are and is often as you know, people buy iphones, people buy windows P CS Mac is still a small percentage of the overall global market.

And so if you could see Arm Qualcomm, uh and arm is by the way, working with other partners to try to get them to build Windows P CS, then this could be a huge opportunity for them.

I'm not saying that they're gonna take a massive market share, but a couple of percentage points is a big deal, especially in this market.

And you know, Intel been struggling to keep up with A MD.

A MD has been kind of getting in there muscling their way in Intel launched their new chip at uh copy in Taipei A MD did as well.

You can imagine that they're just looking at Qualcomm, uh arm and whoever else arm uh plans to bring on maybe a media tech, uh another arm partner and thinking, are they gonna eat our lunch?

Right.

Well, and it's a very big deal, especially given that Apple has been struggling here today.

They just flipped in positive territory.

For the first time this year.

And of course, a big deal as this space continues to be able to have new players and, and we don't even know yet who the winners might be in the next decade or so here, Dan, thanks so much for joining us.

I know you're literally in the midst of filing a story.

So we really appreciate you being on and taking the time.

Thank you so much.

Well, coming up here, Eli Lily is losing its CFO to alphabet.

We're going to discuss what this means for the pharmaceutical giant after the break.

We are watching Soft Bank shares this morning after the financial Times reporting that Elliot management rebuilt a substantial stake in the Japanese technology company, Elliot also reportedly lobbying for $15 billion worth of share buybacks from the firm.

Let's bring in a fit with the details here.

This is a really big deal for both firms that we're talking about here, particularly given the push that we've seen previously from Elliott regarding these buybacks as well.

What do we know?

Yeah, no question about that.

You talked to the stock move that we saw from Softbank on the back that we saw shares overnight in Tokyo trade also jumped roughly 5% on the back of this news.

The financial Times reporting that Elliot management stake in Softbank is worth roughly $2 billion and the activist investor according to the financial Times has already spoken directly with senior management over at Softbank over the last several months, specifically, as you noted pushing to a company to launch 15 billion dollar share buyback with the belief that will deliver an immediate boost to soft banks share price.

Now, all of this of course comes at a time when we've seen that gap between the value of soft banks combined asset and its market valuation widen and the company is coming off of a string of losses that prompted founder Ma Shon to go into what he described as defense mode, selling off some of its key holdings including stakes in doordash as well as grab shares of Soft Bank Group.

So are up roughly 50% year to date.

The 90% stake in arm certainly been a big boost to soft banks specifically in the performance of that stock since the IP O has helped lift soft banks net asset value to 100 $80 billion.

That is double that from a year ago.

And Softbank now reportedly looking to go all in on A I as well as semiconductors uh with a cash pile that totaled 6.2 trillion yen at the end of the fiscal year.

So Elliott potentially looking to kind of position themselves right as Soft Bank is looking to ramp up his investments as well as you noted.

This isn't the first time that Elliott has taken a stake in Soft Bank.

The activist fund took a $2.5 billion stake back in 2020 but sold down most of its stake by early 2022 after losing confidence in sos ability to close that valuation gap at least according to the FT. All right, thanks so much for bringing us the news.

These companies really appreciate it.

Moving to some other corporate news, big news for Eli Lilly this morning.

CFO and not Ashkenazi will be leaving Eli Lilly after two decades.

She's been appointed as alphabets CFO.

Moving forward now, Ashkenazi joined Eli Lilly back in 2001.

She's been CFO there since 2021 previously serving as CFO for several of the company's global business areas and helping manage the revenue windfall that we've seen from I Lily's weight loss and diabetes, drugs.

So us on what this could mean for the company, we have Jared Hold his analyst and our very own health care reporter and Klan as well.

So actually on, I am just going to start with you really quickly.

Can you give us a little bit of the background here on what exactly this move means?

How big of a deal?

This is why her just the bit of the background.

The why is actually the question?

I think a lot of people are intrigued by this move.

It's been a surprise for a lot of folks, you know, and has been with the company 2001 really kind of jumped into the CFO role as a result of her predecessor being accused of improper relationship with an employee.

So that was a move mid pandemic in the middle of the strong growth the company was seeing at the time with its antibody drug on the market for COVID as well as the start of that G LP one rush that the company is now in the middle of.

So it really seeing that push is what you know, has really put her the top.

And so why moving into a tech company?

And we know A I of course, drug companies are big there but why this move and how this move really impacts, not just see like Lily, which has been on a tear up 600% or something crazy like that in the last five years.

But also then for Google, what does that mean to have someone with a strong commercial business, but specifically health care background?

And I think that's, that's the question.

That is the question.

Well, let's ask Jared, I mean, you've been listening in, what do you make of that?

Yeah.

Thanks for having me.

Yeah, it's a really interesting move.

Um I think the one thing that I've kind of been thinking about and then talking to investors about this morning is the fact that it's so difficult to run these pharmaceutical businesses and, and to see a stock with this sort of out performance is, is very rare.

So I think when you kind of, you know, add those two things up, you know, for a tech company, uh you know, a massive Mac seven name like Google to be interested is really not all that surprising when you're talking about an executive who's done such an excellent job in a really, really difficult industry.

And Jared, I wonder about that because it is a difficult industry, but it's been one of the better performing companies with its pipeline really in a strong place.

I know not, has been credited with uh some of the moves with the insulin pricing as well as getting manufacturing boosted, which has helped a lot in the GOP one part of it.

So this move is interesting in the sense that, you know, you're moving from one industry to another.

What are some of the areas that could translate as a positive for her?

Well, I think just being able to navigate um what has become an enormous company in Lily, um $800 billion of market cap um Trumps every other uh peer by a pretty wide margin just being able to navigate in a, in a business or in a company like this, I think translates well to large cap tech.

You're obviously dealing with a lot of people, you're dealing with, you know, industry um and sector dynamics that are, you know, always changing.

I think that's one of the key considerations here as well.

Um And when you kind of think about you know, where Google is and, and where Lily is in terms of like, you know, where they are in the chronology of the companies, they're probably at, at similar points.

I mean, I think both are doing very well, Lily historically, well, obviously on the GOP front.

Um But when you look at alphabet and, and what they're trying to do, um in, in tech, I think there are a lot of parallels here, Jared.

What about Lily right now, how is this going to impact the company?

Are they in a stable position where her departure may not have as much of an impact?

Um You know, we're seeing the stock not really move too much on the news today.

You know, I think they're benefiting today also from um some of this mass data.

Um there's another metabolic disorder um that they presented on earlier today.

So I think that's part of the stock action.

The, the other thing I I think is they're in such an excellent position from a commercialization standpoint, you mentioned improving manufacturing for the G LP.

Um This is a drug that's gonna have so many different um treatments that it's going to attack over the year over the next few years, including, you know, potentially some neurological disorders in terms of Alzheimer's et cetera.

So whoever steps into this role, I think is gonna have a, a pretty simple gig at least over the next couple of years, obviously, longer term we're gonna be talking about pricing and competition.

Those things come up in many conversations on the G LP one market.

But I think for the time being they're, they're in an excellent spot, you know, as the market leader along with Novo and there are a lot of biotech companies that are kind of, you know, trying to position themselves, you know, in this market too.

But it's gonna take a while.

I have a question, Jared, if, if the weight loss drug boom didn't happen, would we see the CFO pick?

Uh It's a really good question and I think so much of it is determined also on, on the success of the stock price.

So the G LP one movement doesn't happen, the stock is nowhere near where it is now.

And I think is kind of, you know, as the in as other industries and other companies kind of look at the assortment of the executives that they can pick from Lily probably doesn't stand out as such a major winner.

So, you know, the odds are likely less, but it, it's super hard to say, right?

It's like asking you to read a crystal ball in a different world, but I appreciate it nonetheless, Jared.

Thank you so much for joining us.

That was Jared Holtz, he's Mizuho senior analyst and of course, our very own Angeli Kim Loni for breaking down this news with us.

We're gonna have all of your markets action ahead plus a conversation about A I.

So stay tuned for more.

You're watching.

Catalysts, small caps are still trailing broader markets year today.

Some folks on the street see potential for upside in the group, including our next guest.

We've got Greg toward he is Goldman Sachs Asset Management, Equity Portfolio manager with us, Greg.

Thanks for being here and so excited to discuss, discuss the brave call here going to small caps instead of just talking about tech all the time.

I mean, of course, my big question, right?

Why now for small caps, when we're seeing that five companies are driving 27% of gains in the S and P 500 why is now the time to get into small caps?

Yeah, it's interesting as I was thinking about preparing for this, for this uh for the shot II, I was thinking about how the bond market is, you know, the, the legendary strategist James Carville used to say the bond market is out there intimidating everybody and paraphrasing obviously, and it definitely has had that impact on small caps in the last couple of years.

And it's been a very, very hard place to try to make money in the face of what's happening with the very big, you know, the big caps and the, and the mega caps out there doing what they're doing.

You know, I do think that there's a large catch up trade that's uh that's in place um that we will see as rate certainty starts to come into the picture.

And I, and I do think that we've seen previews of that, you know, over the course of last year and this year and if you look at some of the way that companies in the small cap space have been performing, you know, some of our names who have reported good earnings, they're really kind of have great theme tail winds that are out there have done quite well even in the face of what's going on with the mega caps.

Well, that's really interesting.

You mentioned the Treasury space and of course, the concern with small caps that you kind of talked about just there is that hire for longer is really gonna impact small cap names more than large caps that are able to refinance their debt.

Small caps don't necessarily have that capability if the fed does not cut in a timeline that is suitable for small caps.

How much does that change your thesis?

It doesn't change at all that much because I do think that what the small caps have had to do over the last two years is really get used to that hire for longer uh type environment.

And I, and I think that most of the companies we own that, that, that we really like a lot don't have that balance sheet risk with heavily indebted or floating rate exposure that people also often think of as a, as a big risk for small caps.

So I do think you have to be selected.

It, it, it, it kind of forces people to think about going active in small caps, not really staying in any of the passive indices and really kind of looking for things and, and for companies that are, that are tied to some of those trends that we think can grow, go that grow through a higher for longer type environment.

How important is stock picking when it comes to small caps?

Because a lot of folks who we talk to and even a lot of investors and retail investors own small caps through ETF S for example, they're not necessarily picking stocks, which of those two is a more attractive strategy in your view.

You know, we think that stock selection is the most important piece of the small cap, you know, environment because the indexes themselves are, are, are a bit flawed.

You know, there's a lot of things in there that I think most investors don't really wanna be invested in and you know, areas that have, you know, a lot of banks, for example, in some areas, maybe some very unprofitable companies that don't have the prospect of turning profitable anytime soon.

So having that ability to kind of lean into the companies, you like really get to know the companies like we do in terms of, you know, spending time with management teams.

I I think that really can put the you know, kind of the, the, the, the, you know, they give you a little bit more of a, of a leg up when it comes to picking stocks and it, and it kind of gets you out of some of the areas that can trip you up.

Well, you sent over a couple of stock picks and we only have time to talk about one.

But you've got on the list.

Boot Barn, trans Medics, Digital Oceans.

I want to talk to you about Boot Barn though.

I just took a look.

This stock is up over 70% year to date, which is crazy.

Um How is that?

And why do they have more room to run in your view?

Yeah, I think it's a company that's got a very, very efficient way to grow.

You know, there'll be a few, there'll be a nice, you know, kind of leg up and no pun intended uh in store growth this year.

But I think that there is an area where Western wear is, is becoming thematically fun again.

Uh Work wear is an area also that they do quite well in.

And we also just saw an update from them very recently.

I think it was yesterday where their comps, their same store sales are actually running much better than expected.

So some of the negatives that people are worried about with the consumer spending are not resonant coupon.

All right, Greg, we got to leave it there.

But really appreciate the conversation.

Thanks for joining us and sticking your neck out for small caps here.

That was Greg Toto.

He is Goldman Sachs Asset Management portfolio manager.

Now coming up a leadership transition for alphabet, what is this going to mean for the future of the tech giant?

We're going to cover all that and more after the break, leadership shake up, coming to alphabet the tech giant announcing that former Eli Lily CFO and not Kenaz, he will take over the role as Chief Financial Officer of that has announced that its current CFO Ruth will start her new role as president and Chief investment Officer next month.

For more.

What this could signal for the company moving forward.

We have just I post, he is Bank of America Securities, Senior Internet technology analyst and he is joining us live from Bank of America's Global Technology Conference in San Francisco.

Thank you so much for being here with us, Justin.

Talk to me about your reaction to this news coming out of alphabet.

I know that Google is under your coverage here.

Are you surprised by the move?

And do you think that it was a good one for them?

Sure.

I think uh first of all, thanks for having me, Madison.

I'm glad to be here.

Um I think it was a clears up an overhang.

There's some uncertainty it's taking longer than people expected to get a CFO.

Obviously someone with deep experience and experience with long product cycles, which I think works well for Google.

So socks up a little bit this morning.

Uh, again, I think not, not a big overhang on the stock but, but clears up some uncertainty and certainly someone with that kind of deep experience is probably good for the company.

So I think that's how the street is taking it and, and how we're looking at it at this point.

Uh, obviously someone outside of the technology area.

So uh don't know a lot about her track record, whether she's a growth CFO or expense CFO uh what is different this time versus when Ruth took over uh many years ago is the company is already on a good cost trajectory.

Uh They just beat last quarter and part of it was expense upside and they've been doing uh small layoffs this year.

So the cost focus is already at Google at this point which we think is a positive for the stock.

All right, Justin, I wanna dig into A I with you our very own.

Shawna Smith is at the same conference that you're at and she's talking to some folks including the new N CEO who told her that there is a risk of an A I bubble.

Now in looking at my Bank of America notes that I love to read.

I took a look at a chart that showcased the kind of NASDAQ versus S and P 500 performance over the past several decades here.

And it indicates that there was a larger spread between the NASDAQ and the S and P in the early odds versus today.

That spread is a little bit tighter.

Now.

To what extent do you think that we are in two eras that are similar or disparate here when it comes to the concern about a potential tech bubble happening again?

Uh Sure, it's, it's very interesting.

I've been through maybe three of these transitions in my career.

Uh Certainly we had the internet build out in the nineties and then all the content that wrote on that, then we had the mobile build out with the device proliferation and all the content around that.

And this time, we have the A I technology and, and we can certainly get into the spend that's going on ahead of the content and services.

But overall, these have been really positive transitions for the internet space and tech in general.

And that's how we think about A I at this point.

So a lot of build a lot of Capex driving the hardware companies and I think you'll see really interesting services and advertising technology on top of that over the next five years.

So we, it is a positive as far as valuations, which I think was the crux of your question.

Um They're not unusual if you look at large cap tech versus 10 year history.

So we don't think we're in a bubble for a large cap uh at least on the internet side at this point.

And if you look at the valuations of companies like Meta or Google uh which is alphabet now or Amazon, uh not unusual versus history at this point.

Well, just you mentioned Capex and as you know, too, well, all Capex is not created equal when it comes to things A I, what should investors be looking at to indicate which cap back on A I is useful for R and D in future potential gains versus just throwing spaghetti and money at the wall.

Uh Sure, it, it is interesting and it is a risk that there could be overbuild.

I think each company is making a smart individual decision, but in aggregate are, are they spending too much is certainly a risk for the, for the companies.

A lot of the capacity is on GP US.

And uh we think, you know, there could be a little bit of overbuild but over a five year period, uh they will find usage for the GP US.

Uh I do think there will be an advertising and content explosion around A I and uh they'll figure out ways to use it.

You could have a little bit of over upfront bill as a modest risk.

Uh When we look at the depreciation expense coming through from all this Capex build, we think we have it in the models.

And uh as long as the top line growth is there.

Uh And, and they cut back on employees and other expenses which we're seeing across the space.

Uh We think they can, they can manage the extra depreciation that's coming through over the next few years.

All right, Justin also really quickly here you cover Reddit.

We've seen the meme frenzy obviously back.

I'm curious, what kind of run do you think that has for this stock?

And do you think it's going to drive Reddit moving forward or is it gonna be more about the business fundamentals for Reddit?

Well, they certainly are an A I beneficiary.

Uh They've signed some interesting deals with learning language model companies uh to help them uh improve, improve their results and performance.

So they have that as a as a positive backdrop as far as the meme stocks, uh hard to say if they're going to be considered a meme stock down the road, uh We're not valuing it that way at this point.

Uh We have a, we have a neutral stock, we think it's pretty, fairly valued here.

Um And what's also really helping them recently is the Google algorithms have changed and you're seeing better traffic flows out of Google.

So that's, that's an important part of the story right now as well.

All right, Justin, we gotta leave it there.

Thank you so much for joining us.

This is a great chat.

Justin Post is Bank of America's Securities Senior Internet technology analyst joining us from San Francisco.

Thank you.

Thanks for having me now.

A group of former and current employees at Open A I Google Deep mind and Anthropic have all published an open letter warning about the lack of oversight in rapidly expanding A I technology.

They argue that A I companies have quote strong financial incentives to avoid effective oversight.

So what could questions about A I safety mean for the sector which has driven the majority of market gains so far this year?

What does it mean moving forward for more on this?

We are going to welcome that.

He is a PC CEO Matt.

Thank you so much for joining us.

I know that you are hands on with A I constantly as part of your business.

But I I do want to get your take on this open letter that we're getting and the implications of it if employees at these A I firms are already voicing concerns about safety.

What does that tell us about the likelihood of continued concerns with regards to A I and the implementation of it in some of the bigger tech firms moving forward here?

I love this letter.

I think it was an extremely responsible step and it's just the sort of thing we need to advance the dialogue about A I.

It was pointing out dangers and we all know there are dangers in A I, it was saying we need regulation and we do, we need a more mature set of regulations.

Europe has taken a step forward.

The United States is not.

And then third, he was asking for transparency and I think we do need far more transparency into what's happening inside an A I organization in order that we can all come to grips with the new technology and know how to set the rules, what stood out to you from the letters.

Is there anything that you didn't already kind of price in or?

No?

Well, look, I think that the, the letter is focused on a few concerns and, and maybe not all the concerns I want us to think broadly about what needs to be regulated in A I.

And it's not just the threats that they mention fundamentally, it's about whether we can trust A I and, and, and whether A I is going to be a partner to us in the way we make decisions as people and as corporations right now A I is a novelty but we haven't really it into our home and into our business.

And so I like II, I love the letter for its transparency, for its regulation.

I think those are the right questions to ask, but we need to go a step beyond what's in the letter.

We need to, to put forward guarantees and promises about how A I is going to be a responsible partner to us.

And you can start with, with transparency.

I love that we start with disclosing the data sources that are trained to make an A I algorithm.

That's a, that's an incredibly and step.

But beyond that, we should also be respecting private data.

You have to have consent and compensation when you use private information or personally identifiable information has to be anonymized and you have to have permission and, and there should be protections for copyright information, things like a photograph, a novel or this morning's New York Times in order to use that you should have consent and compensation.

I've got this core list of four things that I think that I, I'm, I'm asking others to join me because I think this is an important list that'll make A I responsible and it will also make it more mature.

Well, Matt, I want to put the list aside for a second because I'm curious about what the catalyst will be moving forward to create a safer world when it comes to a is implementation.

Do you think that the push for that is going to be able to come from within companies?

The push that we're currently seeing or does it have to come from government, from the public sector?

The government is going to need to regulate because we need to know what the rules are.

But A I using organizations like here at APP and we use A I, we've been selling it for a decade.

We want to be part of the answer.

We want to be a constructive player in creating a good A I future.

And I think here's what it comes down to.

Do you remember when, when web 2.0 came along?

It was a while ago.

Uh Web 2.0 was like the second generation of the internet when it became about you and about us, it was about interacting and offering data back to websites, not just getting it one way.

The future of A I is much the same.

There's going to be an A I 2.0 and in A I 2.0 it's when we trust it with our data and when the A I therefore can tell us something about ourselves and put its recommendations in context of what it knows about us.

In order to get to A I 2.0 we need the trust.

We need to know that A I is a good steward of information about ourselves.

And for that, we need regulations.

We need clarity on what A I's role is.

We need to know that the things we tell A I and that it knows about us are protected.

All right, Matt, we're gonna have to leave it there, but so appreciate you joining us and thank you so much for your insights on the path forward here.

That was Matt Calkins.

He is A B and CEO.

Now coming up here, we are just moments away from Boeing Starliner launch.

We're taking a look at a live picture from that potential launch here.

This is the first manned space mission with NASA astronauts.

We're gonna dig into all of that and more.

Coming up after the break, you're looking right now at a live picture of Boeing's starliner crew launching out of Cape Canaveral Florida.

This is, it's the emergency detector first manned space mission with NASA astronauts.

Now, this launch coming after two previously aborted attempts on Saturday, a launch attempt was called off because of a problem with one of the computers that provide ground support to the rocket.

Now, back in early May and a temple was called off because of an issue detected with the rocket itself.

If successful.

The two astronauts are expected to return to earth in about 10 days.

Now, you can probably hear the sound of voices speaking.

Those are officials with NASA.

You can hear that under this live shot of what will potentially be this Boeing starliner launch.

But Brad Smith is in studio with me to talk about this launch.

Brad.

I know it's been for us for a while.

You're a big space fan.

We gotta get you down there to Cape Canaveral next time.

Oh, I'd love to.

Who doesn't love the space space?

Look, you got two astronauts, two great NASA astronauts in there, Butch Wilmore and Sunny Williams safely secured in their seats ahead of the launch as of 908 eastern time.

Here is the countdown.

Let's listen in one ignition and lift off of starliner at Atlas five carrying two American heroes drawing a line to the stars for all of us.

Sounds good.

And there you were listening to the live countdown, the successful launch as it has successfully gotten off the ground in Cape Canaveral Florida.

This is the CST 100 star liner that is being launched in junction with NASA and Boeing.

There is we're continuing to see even more shots 35 36 seconds now into launch here.

Now this is the joint Boeing United launch alliance pad team depart the launch pad and to join emergency response teams station a safe distance away until after lift off as well.

Wilmore and Williams, they're continuing some of the procedures here.

Of course, uh They had been leading up to this in coordinating with the launch control teams in Houston and Florida as well.

And so ultimately here we're taking a look at successful lift off here, multiple camera angles.

I love this about the launches.

Now that we get to really get involved with every time I get to cover one of these, I'm such a loser.

I like still get chills.

It's so cool that it goes off.

You hear everybody, you know, think about all the people who work on this and it's obviously had a lot of issues.

So it's really exciting for them and of course for the NASA flyers, as you mentioned, Suny and but you are a part of this now in terms of the finance angle here, right, Boeing rival Space X, both awarded NASA contracts back in 2014 to build a spacecraft that could kind of astronauts back and forth between the US and the ISS the International Space Station and that it would be part of the agency's commercial crew program.

But a series of kind of glitches with Boeing starliner prevented them from doing this.

Over the past month, they've had about three potentials that they've had exactly three potential launches.

And this is kind of been a very delayed program for Bo and made a lot of volatility for the obviously as well.

So this successful launch a really big deal for Boeing here, Brad and it costs it costs money to send something into space and for this star liner for Boeing.

According to Reuters, it's been about $1.5 billion in racked up unplanned development costs.

So as you're thinking, as the shareholders are as well here on the day, a successful launch, finally, they might be saying to themselves at a time where Boeing has faced issues over the course of this year, taking a look at some of the shares of Boeing coming into this and over the course of the year to date, we're still taking a look at shares down 25% launches like this.

They sure do require a lot of capital.

That's why they need many of the government contracts and the funding to come forward and able um to, to kind of launch these in alliance as well to make sure that it lessens some of the blow.

But when you have delays, that's what in the costs start to get a little bit more unplanned and a little bit more volatile.

Those delays have been about seven years here.

Right.

And in that amount of time, SpaceX was able to launch nine crews to the International Space Station for NASA since the year 2000.

But again, Boeing capsule lifting off in its first crude space station mission, the first successful one for them.

So very big big deal for Boeing that stock up just up to the upside about 1/10 of a percent on the news.

Now coming up, we have wealth dedicated to all of your personal finance and our very own.

Brad Smith is going to stick around for you for the next hour.

He's going to have all the wealth news that you need to stay tuned.