11AM Hour: NetApp CEO on Earnings, Garnering Support for Data Centers & CNBC Special Report: Stealing Anthropic's IP 9/3/26

0:00Good Thursday morning. Welcome to Squalk on the street. I'm Carl King Teneo with Leslie Picker here at Post 9 of the New York Stock Exchange. Sarah Eisen's off today. Coming up this morning, call it AI's data center reputation problem with public opposition rising. We're going to talk to the founder of one new group, try to change public opinion. Plus AI demand lifting net out to a record corner CEO George Curryen joins us to discuss that company's outlook. And how dark web hackers are stealing and thropic and open AI's top models. CBC investigates the role that China plays and just why it's so hard to police. Right now though, let's take a look at the markets near session high is right now the Nasdaq up about 0.8%. Thanks in large part to software today on some positive earnings from snowflake and others the S&P up about half a percent yields coming down a little bit to 4756 at this hour. We're seeing some stabilization. Thanks to some of those comments from Fed governor Christopher

1:02Waller speaking of which he did make comments on both inflation productivity raid policy this morning ahead of the upcoming Fed meeting. Let's get to Steve Leesman talk about some notable comments going into CPI Steve. Yeah, Carl the comments from the Fed governor raise additional doubts on whether or not there's going to be a hike at the September meeting. Waller in a speech this morning at a Reuters event saying he's finally seeing some signs of disinflation that underlying inflation is better than core inflation and that he's not seeing additional price pressure coming from tariffs energy or wages that we still believe inflation risks are to the upside. Why Waller should themselves to be firmly on the fence about whether to hike or to hold at the upcoming September meeting saying the August inflation report coming next Friday would be decisive. If there's continued progress towards our 2% goal then I'm willing to hold willing to support holding the policy rate at its current level. But if

2:06inflation comes in hot I would consider a rate hike. The probability of a Fed rate I got the September meeting declined to 50% you can see there from 61% before Waller spoke it was helped by a slight decline in oil prices and by dovish comments yesterday by New York Fed president John Williams to CNBC all of that follow unexpectedly hawkers comments of course by Kevin Worsh last week that led many to price in a higher probability of a rate hike in September but this kind of uncertainty may be a feature not a bug of the Worsh era at least we know where Waller stands on the upcoming report Carl. Really interesting comments about about playing the ball not the Fed and that you got to know where the Empire's strike zone is before you can gauge some of that the other is that he doesn't seem to think that best since buyback will do very much although we added he has the prerogative to do it.

3:07No I can tell you from Jackson Hole on this latter point Carl that there was and there were not good reviews of the Treasury Secretary's buybacks both because of the concern about government intervention in the bond market but also that it wasn't it did not expect to be very effective you know on Waller's communications comments he's going to be out there talking and many other Fed officials have been out there saying look they think it's their responsibility to talk to the to the markets as explained their reaction function they're not giving forward guidance as in the commitment of what to you they're just saying how they react where the strike zone is as you say when the ball comes in and they're kind of defiant and really in disagreement with the with the chairman about what it is they should be saying. Yeah sounds like a family fight alright as we've been talking about Steve thank you. Steve Lee's been for us for more on the markets let's bring in Drew Mattis Chief Market Strategist at MetLife Investment Management. Drew do you think there is a Fed risk premium that's currently being reflected in

4:11the markets just given the uncertainty over policy and this pivot away from for guidance. I think there might be some but I actually think it's healthy and you know I think Governor Waller did wash a favor today getting the odds back down to 50-50 which means wash can push the committee where he needs where he believes it should go in September. I'm not convinced he's a hawk and I'm not convinced quite frankly I know we always ask what the Fed will do instead what they should do they shouldn't like interest rates. If tail risk is their concern the bigger tail risk is that the weakness we're seeing in the labor market actually plays out in a higher unemployment rate going forward. You know the alternative is inflation stays basically where it is at three to three and a half percent for another couple months. So I'm not really sure you know driving the economy into a recession to try to bring out inflation when inflation expectations are not the problem is the solution the Fed should be trying to move towards. So then how are you thinking about tomorrow's payroll print and the importance of the entire calculation with regard to rates? Well I you know

5:16payrolls obviously become important because you know we're actually running at 20,000 a month for the year year to date right so it's possible that the amount of you know a number of people in the economy looking for jobs is of roughly equal to 20,000 a month and that's why the unemployment rate hasn't moved but we've also seen the participation rate come down pretty sharply and so it's more likely that if we see a rebound in participation we're going to see a rise in unemployment. What's it mean for rates? We think rates are probably a little overdone here you know our view is that year end you're looking at 10 year yields around four and a half. We think that's consistent with the rate of growth in the economy the potential rate of growth in the economy and the inflation rate in the economy that we're anticipating. Yeah we were talking yesterday drew about the hiring rate at Joltz near the lows from the GFC ADP weakest since January more separations than hires I think for three straight months why do you think it is that stocks care more about rates than then jobs?

6:17You know I don't think it's that they don't care about jobs I think that you know there is this idea out there that the unemployment rate is the only number that matters but I think for a lot of economists now are beginning to say hey wait a second what if there's a seasonal in the labor force participation rate that we're not recognizing maybe the loss in state and local jobs that we saw last month gets repeated because we've seen a lot of the stimulus that went to state local governments for COVID they've spent that money now and so now they have to actually make their budgets work without that additional money and that puts some downward pressure on state local jobs. There are there's this underlying current out there and I think quite frankly most people don't want to play economists and so if you don't want to play economists you look at the unemployment rate you say everything's fine and then you look at inflation and you say well it's been you know five years but of course the retort to that is it's been five years why now right you know you you have to pick your your battles and when you fight them and I think this is the wrong time for the Fed to be fighting this battle this is the time for the fed use the credibility they've

7:20established over the decades to basically tell people like look inflation's gonna gradually get back to 2% we don't need the rush this because we know we can get inflation to zero you're just not gonna like how we have to do it so we're actually trying to kind of go a more gradual path. Well I was thinking Drew you and I we've talked for a couple years now about your belief that parents are worried about their their kids and their career prospects today the FT has a whole piece on that generation that learned to code and how that era is essentially dead I mean at what point do you start to get even more concerned about things that Bill Gates warned about in his essay about labor? You know I'm just not I you know my view is that you know when people when you look at actually the work product that comes out there's a lot of very interesting things you can do with AI does it replace the person that I've hired it does not you know I need that judgment that's there that AI does

8:21not have I need that person to be able to pivot and adapt I don't I don't just fire and forget right I constantly am engaging with the people I work with and so you know I'm actually more in line with what the Fed argued is causing kind of any sort of weakness in the labor market which is you know work from home means that kind of you know new hires become that much more expensive and so firms are actually hiring experienced workers because they don't have to then you know basically absorb the training costs that are elevated because of work from home policies. Meantime going back to the other side of the Fed's mandate inflation is it possible to really get much clarity on the prospect of of additional inflation from here without a resolution to the war in Iran and the kind of fallout impact on oil prices. I think no to the overall inflation story because there's a lot of geopolitics and on the core side I do think that what we're seeing is a gradual decline in core inflation that will continue I think the fact that inflation

9:25expectations have not increased right you know if you look at five-year five-year inflation expectations so inflation expectations in the long term they're basically where they were when we started the year but all of a sudden there's this idea that we have to solve inflation now you know whip inflation now didn't work then in the 70s it's not going to work now you know whip inflation when it's convenient to whip inflation you know probably doesn't fit on a button but it's probably the better the better strategy. Yeah as we were talking last hour with double lines Jeffrey Sherman you know sometimes it's more about the signal than actually combating inflation with regard to what rate hikes might mean. Drew thank you. Still had this morning the CEO of Data Storage Company NetApp will join us stocks reversing some early declines after reporting a beat on the top in the bottom lines. Plus a new CNBC exclusive digs into how cyber criminals are stealing intellectual property from anthropic and open AI and experts are saying it's almost impossible to police will bring you those details in

10:28just a moment. Take a look at Cherries and NetApp hire this morning after reporting a beat on the top in the bottom lines in fiscal Q1 guidance coming in above consensus company says it sees enterprise customers prioritizing spending around storage and data infrastructure even in a constrained budget environment joining us first on CNBC this morning is netfco George Curian talk about the corner George great to have you. Thank you for having me good morning. Is there something about the full year guide that implies some incremental softness in Q3 and 4? So we are super excited about the start to the year. We had a record setting quarter beating on very pretty much every metric. Revenue was up 30% year on year. Our all flash of storage business high performance storage business was up 47% year on year and we raised the full year outlook substantially

11:29first half and second half. But one quarter in we see really good momentum excited to see how the year unfolds right is it is it harder to predict in this era of AI demand versus classic errors of enterprise demand in the past. Our business has a broad customer base so you know we are relatively insulated from the vagaries of a particular customers buying patterns. We have a customer base north of 35,000 customers and what we saw in the quarter was strength across every size of customer industry and geography. How I want to ask you about product gross margins. How did product mix itself impact your ability to outperform on gross margins. What were some of the puts and takes that kind of led to your numbers this quarter?

12:30I think what we saw in the past quarter was continued uptake of the highest performance versions of our products which have substantial amounts of software as well as a broader mix of software capabilities for things like integrated cyber defense and cyber protection of that software mix in the portfolio and the higher performance configurations drove the beat on product gross margin. One of the hallmarks George of earnings calls especially this week and last is here's our here's our view on what we're going to do on the year. Here's what we could be doing if there were no supply headwinds and constraints. Do you have you broken out metrics like that? We haven't obviously when we provide guidance we want to make sure we have adequate supply to meet that demand and right now we feel good working with

13:31our suppliers about our ability to meet anticipated demand. Do you think next year is going to be incrementally easier or harder from a supply standpoint? Listen I think it really depends on continued investments from the supply ecosystem to build additional capacity. We work with the broad range of suppliers. I don't think at this point it's either going to be incrementally easier or incrementally harder. It really depends on how much more supply comes online. Demand for us certainly looks really strong. Right I mean you talked to some of the remember we had Sandisk here at the desk a few weeks ago and his point was largely that pricing structures have changed in a way that allows them to bet more efficiently plan their capacity buildouts. Is that sort of is that universal across tech right now? I think broadly speaking you know we work with suppliers to construct

14:35different types of agreements for the supply that we need. Some of them are certainly longer term agreements that give them better visibility and give us in turn more favorable economics as well. What should we expect to hear from you at insight 2026 I believe later this month? You'll hear us talking about a huge amount of new capabilities for customers that use the NetApp data infrastructure platform. Capabilities to make it easier for them to do more business with us. But importantly address more challenging problems that they have to deal with. How do you support data sovereignty requirements while still being able to use the innovation in the hyper scale clouds? How do you deal with advanced threat protection against new agentic AI powered cyber attacks on your data? And then of course how do we deliver the industry's fastest most scalable

15:40AI infrastructure solutions so that you can train these enormously large models for your business? Super excited we have awesome innovation coming. Yes on the cyber part I'm looking to see Altman Sam Altman of Open AI has been making a lot of comments this week and he was talking about at G20 I think his quote goes I think some things are going to go very wrong with cybersecurity unless people act quite urgently. He talked about the advent of fire did great things for civilization but it also burned down a few cities. Can you characterize your level of concern? Listen I think with any powerful technology it is important for the stewards of that technology to operate with the principles and values of humanity at large. I think we in the tech industry have that responsibility. Our contribution to the industry is really to make sure that data the most critical digital asset of organizations

16:47is super well protected. We can detect and block attacks at in real time and those types of attacks are what a gentick can create and so we continue to evolve our capabilities to be a good contributor to the deployment of these technologies for our clients. Finally Georgia doesn't sound like you're in the mood to go big on acquisitions but there might be some tuck-in opportunities in the future. That's right I think at any of these technology transition moments you feel good about the things that you've built and that you continue to build organically but you also need to be aware of the fact that there's talent there are new technical capabilities that could complement and accelerate your road maps and we did a couple of tuck-ins and we certainly keep our eyes open for what's available out there that might allow us to accelerate our capabilities. George fascinating time it's always good to get your view on where we are in this chapter

17:51they're moving pretty fast please come back soon thank you so much for having me have a wonderful weekend YouTube. Thank you still ahead we will bring you a CBC exclusive digging into how cyber criminals are stealing intellectual property from open AI and anthropic and how it's impacting margins ahead of their upcoming IPOs. Plus maybe the only thing that can unite Steve Bannon, AOC and Bernie Sanders the fight against data centers we'll talk to one someone who's trying to change the public perception when we're back in just a minute. Welcome back Google open AI and anthropic have poured billions into building the world's most advanced AI platforms but there's a new threat to those investments experts say foreign companies are trying to illegally access those systems and use them to train their own cheaper AI technology. For the first time anthropic is speaking on camera about what these attacks could mean for its business and the national security risks according to the AI lab they're doing this by ripping off American technology gate Rooney

18:56as the exclusive. Cyber security experts say foreign criminals are getting stolen credit card information and AI accounts from the dark web to illegally access platforms like Claude Gemini and ChatGPT in places where these platforms restrict access like Iran China North Korea and Russia but it's not just so they can check out the latest technology experts Telcian B.C. they're trying to steal it. It's a hard-to-trace tactic called distillation. To do this hackers will ask AI models thousands of questions then they use those answers to train their own smaller AI platforms which are often offered at a fraction of the price. Travis Lanham is the chief technology officer of cyber security firm Armadin. He says not only are cyber criminals using individual consumer accounts but larger business accounts that allow them to ask many more questions and allow them to execute

19:56this at scale. Those types of accounts that can be used to ask a lot of questions or do a lot of prompts and then capture that data versus the smaller limits that are applied to the individual user accounts. Why isn't that standout to an AI company? I would think something like that would be easy to spot. These companies are serving billions of requests and the millions are relatively small compared to everything and it's just sneaking in and trying to look like the rest of the crowd. Jacob Klein is in charge of shutting down the global cyber criminals targeting Anthropic. He says beyond the risk of IP theft Anthropics concern is that these stolen models can be misused. These unsafe garden models can pose a national security concern. They can be used for things like hacking into critical infrastructure, hacking into governments into companies. Have you seen any evidence of distillation attacks resulting in cyber security issues or anything on that national security level? We saw a campaign from a Chinese-based entity conduct espionage at scale in an

21:04automated fashion leveraging our technology. We disrupted this, we improved our safeguards, but we see this on an ongoing basis, bad actors trying to use Claude to conduct malicious cyber attacks. Anthropic has publicly alleged that its chatbot Claude has been distilled by Chinese AI labs, moonshot, minimax, and deepseek to do this. It says these AI labs generated over 16 million exchanges with Claude through approximately 24,000 fraudulent accounts. The company exclusively told CNBC that moonshot recently developed a new model that distilled off of the latest Claude model. It does come amid reports just this morning that moonshot has now filed to go public in Hong Kong, deepseek, minimax, and moonshot did not respond to CNBC's request for comment. Washington, meanwhile, is paying attention in a memo from April, the Trump administration wrote the distillation that undermines American research and proprietary information is, quote, unacceptable and that it would explore a range of measures to hold foreign actors accountable. And finally, guys,

22:07many of these models that we're talking about and Anthropic is taking issue with are open source. They are often cheaper. They're easier to tweak and they are being widely adopted in corporate America. They are also often offered through the platform hugging face, which we did just get news this morning, is being acquired for roughly $13 billion by Nvidia guys. Kate, you flagged that letter from the White House back in April that they would kind of pursue measures here. What are the options that the U.S. can actually do in order to protect American IP? Because it obviously, it's very important for Anthropic and OpenAI's business models to make sure that all of that is protected. Gosh, Leslie, so it's such a tough issue. The administration has talked about taking steps to do this, to crack down on this. It really is a game of whack-a-mull and Jacob Klein, who we spoke with, over at Anthropic said it's nearly impossible to shut down entirely. They can slow it down. But the only real solution would be to ban some of these open source models. There is an entire wave of corporate CEOs and executives who have said,

23:13no, that would actually be really a negative thing for competition, for cost, because at the same time, as yes, maybe these models have been distilled in a way that is illegal at the same time. They are cheaper options that allow a lot of companies to use AI for a much lower price point. So it's just such a tough issue to actually think about in terms of regulation. White House is really dealing with it, but they don't want to shut off access to other options here. So the idea of banning open source has gotten a lot of pushback, although that would be one option, and everybody's sort of saying, well, we can't ban it, but at the same time, we don't like that they've ripped off our technology. It comes at a time too, and these companies are going public, so that is one threat. That's been the criticism and pushback. We did ask Anthropic about that. They said, we like competition. Distillation is actually used. They use distillation to train their models. This is different. It's nuanced. They say it's unauthorized, and there is a dark web component to it as well. By the way, watch out for your cloud account because in OpenAI, all of these companies said there's now new economic incentive for hackers to take over individual accounts to do this. They said,

24:16guard it like you would guard your bank account because of the economic incentives to go and hack individuals. Wow, fascinating and remarkable candor, as they get more explicit about the dangers surrounding all of this. Okay, thank you. Okay, really pretty interesting. Let's get a news update this morning with Frank Holland. Morning, Frank. Hey, good morning to you, Carl. The Jorin the Lindsey Clancy murder trial began at 6-day of deliberations this morning. The panels already said twice they could not come to an agreement on whether the former labor and delivery nurse should be held criminally responsible for killing her three young children. If they remained deadlocked the third time, the judges likely to declare a mistrial. Former Venezuelan president Nicholas Maduro and his wife were asking a judge to drop drug traffic in charges against them. They argue they should have immunity as the leader in first lady of a foreign country. Maduro has been held in a New York jail since US captured him in a military raid back in January. And House Republicans canceled the last two weeks of sessions for September. The move was announced by House whipped time effort Emmer's office and means lawmakers will only return one more week before the midterm elections. Leslie, back over to you.

25:21All right, Frank. Thank you. Still ahead. It might be the only thing to unite Steve Bannon, AOC and Bernie Sanders. That is the fight against data centers. We'll speak to someone who is trying to change the public perception next. Plus Elon Musk hosting a cybercab event tonight in Austin. Will this be a catalyst for the stock, which is already put together a series of strong weeks? We're back in just a moment. I think that when people see the data centers, they're thinking, oh, jeez, that's my job. Yeah, it could be gone. The reality is I want CEOs that give a damn about the community where they're going to be. And unfortunately, we've seen too many developers who don't care about our communities. AI companies, whether it is the builders of the data centers, whether it is the labs themselves have done a horrendous job of explaining themselves to the American people. And I think we need a big reset on this. The critical chorus against data center construction is growing. It's

26:21even uniting some unlikely allies like Steve Bannon, Bernie Sanders and AOC. Our next guest is one of a number of data center executives looking to shift the view on the build out. Joining us this morning is QTS data centers, Co CEO and founding member of data center advocacy group infrastructure for America, Tag Greason. Tag, appreciate the time this morning. Good to see you. Or I'll good to see you. Thanks for having me. So as we pointed out, we've heard from all parties all across the spectrum. What do you think the unified message needs to be from the industry? You know, it's very clear to me. And I agree with all the sentiments on the on the teaser coming in. We've done a not good job to be honest with you, talking about it, but it's easy for us to say out loud that the AI race is not just about AI. It's about infrastructure. And we have a responsibility as an industry to do a better job telling the story and holding ourselves accountable for responsible development in the communities that we work and live.

27:24And having that opportunity to speak to you today and just talk a little bit about the narrative is a key part of that. Can you point to good examples where this is working? Yeah, absolutely. You know, we've had the opportunity, this is my 27th year in the data center industry. And over time, we've had the opportunity to talk to communities directly. I believe that we have two years and one mouth for a reason. We should go to our communities and talk to them about what's most important to them. And we should come and answer the hard questions that are legitimate questions, Carl, questions about power and water and energy usage, questions about noise and job creation. We have a responsibility to answer those tough questions and answer them in a disciplined way. The answers are clear in my mind that we can actually grow our economy. We can drive the digital economy and we can be responsible builders all at the same time. And so when I think about examples of that, we have projects across the country. We're in Cedar Rapids, Iowa. We're in

28:27Lakeley, Georgia. We are in Fayetteville, Georgia. We're in other areas around the country that have largely been forgotten by the large economy in general. We talk a lot about the coast. We talk about the west coast. We talk about the east coast, but that area in the middle, that heart of the heartland is an area where we can do better on behalf of those communities. And we can do it in a responsible way, bring jobs, bring investments, bring the opportunities to lift those communities up and give them the opportunities that maybe they haven't had before. Do you have a sense of how we got here with regard to data center reputation? I ask because this political cause against data centers really transcends political parties. You have a recent poll suggesting that two thirds of Republicans upwards of 80% of independence and Democrats oppose these local projects. And so I'm just curious where all of this discontent really came from

29:28if you can kind of pinpoint a source of it all. Leslie, it's hard to pinpoint an actual source. I will say the DNA of the data center for many, many years has been one that is just part of the digital economy. We've never been in the spotlight before. We've never had the opportunity to tell our story about responsible building. And so in the absence of the data center industry, talking on behalf of the good work that we do in the communities that we're in, that void was filled with sometimes misinformation, sometimes confusion, and sometimes just a lack of knowledge about what's happening or what could happen in the community. I think that coupled with some of the mystery around AI and what the future of the AI is going to look like. But I think it's also important for the viewers to remember that these data centers are not just dedicated on AI. We support cloud services. We support autonomous driving. We support life sciences innovation. We support so many parts of our economy today. I think the bad rap started Leslie when we started to talk about the AI portion

30:35of the industry. But there is a huge part of the infrastructure out there that supports so much more than AI. It supports everything we do in our daily life to be more productive, to be more connected, and to be a better stored of the resources that we have across the country. So then does that suggest to you that maybe the concerns aren't necessarily environmental or silicon valley backlash that it's more concerns about, hey, here's this data center in my backyard. Oh, and by the way, I'm concerned about AI and it taking my job in the future. That it stems more from this labor replacement theory than maybe some of the widely publicized concerns about water, electricity, noise, things that could be theoretically remedied if these data centers were to work with the local communities. Yeah, Leslie, I think that the data center itself is the manifestation of a lot of concerns out there in the marketplace. Lots of people talk about the job displacement you had mentioned that earlier. I think this is actually going to be a boom

31:40for jobs. For example, I had the opportunity to speak to 57 partners at our partner summit yesterday here in Northern Virginia. And those 57 partners employ over 900,000 people in the industry, specifically supporting the digital infrastructure and our part in that digital infrastructure. And so AI may change the flavor of jobs. Jobs might move from one part of the economy to the other. But I think that this renaissance of manufacturing in the United States is actually going to be net positive to job creation. I think the thing that the real challenge for us is trying to find the right pathways for our young students to understand what the job opportunities are. Maybe you weren't going to be something that AI replaced. But now you could actually be in skill trade. You could be in the data center industry. You could be in the energy industry. You could be in the cloud services industry. There are so many ways that this infrastructure can

32:43support the digital economy in a positive way. I believe that that will far outpace any job displacement caused by AI. Tag 61 days until the midterms. And we'll see if this effort can can reverse some of these some poll numbers at least. If you believe them, we'll see what happens in a couple of months. Please come back. Tag Greece and QTS. Awesome. Well, thanks so much. Coming up in video buying hugging face for nearly $13 billion. Why one analyst says the deal is a good example of NVIDIA's continued march to deliver the entire solution or back in a moment. Welcome back to Swack on the street in video today making its acquisition of hugging face official and in 13 nearly $13 billion deal in video CEO Jensen Wong appeared alongside the hugging face CEO on Swack box earlier this morning where he discussed his rationale for buying the company. Listen. When he came to me and said that they're thinking about their next chapter,

33:43my first thought was of course I want to make sure that this this platform in this company is in great hands. And and then make sure that that can continue to thrive and grow because as it turns out, they've been working on this now for 10 years. Their vision is spot on that the that the large there's a large community and industry of people who who really need open models. So their vision was spot on. And at the time when open models are accelerating, this is really a very very delicate time and want to make sure that it's has all the support necessary. Joining us now with his take on the deal more insights and strategy founder and CEO Patrick Morhad. Patrick, does this deal make sense to you? It does on a couple of vectors. So first of all, just to to put this in in context, NVIDIA just bought the place where developers decide which model to run, right? So it's distribution. But can also serve AI workloads versus hugging faces spaces. And I say, I think top line is about accelerating

34:48open source growth, but I think it's a tam play, but it's also a hedge, right? I mean, the Neil clouds hedge, the hyperscalers and I think hugging face hedges the closed labs building their own chips. So if you are a close lab, if you're an open AI or an anthropic and you read the news of today's deal, what do you think about that? So I think everybody has embraced the idea of co-option. All of the leading closed labs are not only using non-NVIDIA GPUs with AMD, but also creating their own accelerator. So it's not one big happy family, but everybody is relying on each other right now. And there's so much compute required and the rate of change is so big, everybody can grow. And while I wouldn't normally say this, I think everybody can be winners here. So then, you know, in terms of the economics here, what is the hugging face business model?

35:51And is there any kind of economic benefit for NVIDIA or is it more as you outlined earlier, just that the stack and the flywheel effect that NVIDIA gets from having that in-house and making sure as Jensen Wong was saying that it's in good hands? Yeah, right now it looks like an 86X multiple. They've got 150 million ARR. Compare that to Microsoft paid $7.5 billion for GitHub. So we like to call the strategic premium, which is so high that there has to be some combined multiple value from it. And I think even, even climb from hugging face admitted to keep it open to keep it independent and growing, these guys needed funding that they likely couldn't get from a VC. Yeah, it's interesting that you bring up Microsoft GitHub. I think it was BIAV yesterday argued that it kind of is like a Trojan horse in that sense where it first appears as just free

36:55software, but once it's inside, it kind of drives all kinds of demand for networking and compute. Does that metaphor make sense to you? Oh, 100%. In fact, if hugging face wanted to go all in, they can replicate what GitHub does, which means the first place the developer stop, combine that with the second place, which is currently hugging face, and then could even serve models and serve compute on hugging face space. So you could essentially pull together your own hyperscaler, sorry, your own lab capabilities plus hyperscate capabilities, even though that's not what the companies are talking about yet. Yeah, it's not too often you have a firm hacked, or at least attacked by agents and then bought for billions of dollars a few weeks later. Was the attack seen as a vulnerability or any reflected any shortcomings above the firm itself?

37:57Yeah, so related to this, I mean, short answer is no. I see these as a completely separate hugging face just happened to be a, I wouldn't call it, it's not an easy target because they have got good security, but when you put the forces of an unknown model that attacked it, and in the way that it did, it did, it did, it did if nothing else, it raised the specter and the risk of overall AI security. I don't think them getting attacked has anything to do with the acquisition today as if, you know, they need more money or more funding to have better security. The timing is interesting, though, because for the mere mortals of us who don't work in AI, the first time I ever heard of hugging face was when it was attacked, and I just wonder, given that, and then the CEO of the company kind of talking to Jensen Wong and saying we're looking into our next steps, was there any kind of connection there? I think the biggest connection is,

38:59I mean, even though my firm has been talking about how powerful open models would be, hugging face is the portal. It is the central repository for models, and a lot of the value that has gone around that, and whether it's an Nvidia, a Silicon support AMD, or even XPUs from the Hyberscalers, it has become the default, and open source is a future that more people are embracing, and whether that's Chinese open source models, or some of the new open source models that Meta and SpaceX AI are going to bring out, and in fact, you know, even open source models coming out of the Middle East to balance out the Chinese models. NBC UAI, IFM brought out a new set of very capable open source models, and the reason why open source models is becoming so important is because of a cost, but also control in where you can run those, and also the alpha or the IP

40:12that enterprises are viewing. If they can run their own open source models, even on their own infrastructure, they can protect their IP from the frontier models. And you've had a ton of guests get on their, get on your show and discuss this. Right, absolutely. Yeah, we'll see kind of what the cyber protections look like once this company is inside Nvidia, but certainly an interesting deal nonetheless Patrick, thanks for helping explain it to us, Patrick. Thank you. Still ahead this morning, Elon Musk hosting a cybercat event tonight in Austin. We're going to talk about what to expect, and whether it will be a continued catalyst for a well-performing stock lately when we're back in a minute. Welcome back, Elon Musk hosting a cybercat event tonight in Austin. Our filibow joins us this morning with what to expect. Morning, Phil. Carl, good question as to what to expect with this cybercat launch that they are calling for tonight's event in Austin. They did actually put a post

41:15yesterday on social media saying no steering wheels, no pedals, and it is unclear exactly what they're going to be announcing or what Elon Musk will be talking about tonight. When they first introduced the cybercab, a lot of people sat there and they said, okay, is this just the next extension of the Robo Taxi? Well, it will be looking very similar to what he got in. This is an event from several months ago when they first announced that they would be doing manufacturing of the cybercab. The event tonight, the question is what kind of tangible markers will be put out there in terms of the deployment. There are about 156 of these according to some websites that have been registered unsupervised cybercabs. Andrew Percoco, the the analyst at Morgan Stanley, who covers Tesla, put out a note yesterday saying, with past events, tangible evidence of commercial deployment trends tends to be an important differentiator for stock performance. Look, in the last month, you cannot complain if you have own shares of Tesla up about 28%. Remember a month ago,

42:19guys, at the end of July, this was a stock that was under 300. I think it was at 298 at one point on July 28th, up 28% since then. So it all comes down to what they actually announced tonight. If this is just a bunch of influencers and others who follow Tesla saying, it's great, get out there and try it. It's probably not going to have the same impact as if they say, here is some tangible deployment markers that we're putting out there. Really fascinating, especially on the heels of the Waymo news from a few days ago, Phil, thank you. I do want to get to XLF before we go to the judge and how well the banks are doing today. Yeah, the financial is pretty broad based insurance, banks, diversified financials, like credit cards, all doing well today. Part of that has to do with some of the yield curve steepen as well. And Jim's got so far on tonight. All opinions expressed by Squawk on the street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and may have been previously disseminated by them on television, radio, internet or another medium. You should not treat any opinion expressed on this podcast

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