SOTS 2nd Hour: State of the Union Takeaways, Countering AI Disruption Fears, and LIVE: Lucid CEO 2/25/26

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Hello, I'm Laura Castleton with Janice Henderson Investors. We've worked to help our clients achieve superior financial outcomes and fulfill our purpose of investing in a brighter future together. To learn more, go to janicehenderson.com.

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Sara Eisen (0:50)

Good Wednesday morning. Welcome to Squawk on the Street. I'm Sara Eisen with Carl Quintanilla and David Faber. We are live, as always, from Post 9 of the New York Stock Exchange. Coming up on today's show, is Nvidia still the AI bellwether it used to be? We'll talk about what's at stake when the company reports results in just a few hours. Plot CEO of EV maker Lucid will be on with us on the back of results as questions swirl around the future of the EV market and as the company lays off workers. And we're on Supreme Court watch again as we await potential decisions, including on President Trump's authority to fire Fed Governor Lisa Cook. We don't know if that's coming today, but we'll monitor it and bring any headlines as soon as we get them. But guys, I have some good news. It's a little pushback to the narrative lately and the fears lately about AI coming for all of our jobs, coming for white collar jobs, coming for the economy, coming for consumer stocks, basically coming for everything. Remember this Cetrine note created a lot of fears and a lot of disruption and a lot of sell-off on Wall Street. Well, guess what? Citadel has a very interesting note out today from Frank Flight, who's a sort of macro strategist over there, with some pushback. And the thrust of it is that just because AI is accelerating very quickly in terms of its technology and what it's able to do does not mean that the economy, enterprises, and consumers will be that fast when it comes to adopting it. And just a few charts that he highlights here, that I thought were worth sharing with everybody. Number one, rest assured, software engineer job postings are way up. In fact, they're much higher than overall job postings. Remember, this kind of goes against the narrative that all the software engineers are going to be extinct because cloud code is just going to do everything, right? That we're not going to need as many software engineers. Right now, there's still a ton of demand for it, which I think speaks to a little bit of the slower adoption.

And then, the other chart that I just wanted to show was the overall enterprise adoption. And this comes from the Citadel Report, but he takes it from a St. Louis Fed survey about whether businesses and working age adults are using AI. And what you can see here is that there's a lot of different lines, but basically it just shows that the share is rising slowly. It's not rising quickly. It's not a linear move. And I think that's the bottom line, they say. For AI to produce a negative demand shock, the economy must see a material acceleration in adoption, experience near-term labor substitution, no fiscal response, negligible investment absorption, and unconstrained scaling of compute. And there's not evidence, first of all, historically, that that happens in technology cycles. It's usually more of an S-curve in terms of adoption or that it's necessarily happening right now.

David Faber (3:38)

Yeah, you'll hear about the J-curve and the S-curve. There's no doubt about that. And many of the software companies will actually give you a positive that will say ultimately we're going to get paid on outcomes, not on seats, and we're operating on data sets that are individual to these companies, so they're not available to the large language models. That said, I think, Sara, the question that investors really have is what's the terminal multiple for many of these companies? I don't think many of them expect that there's going to be a diminution over the short term in their business. But the question is what it means longer term for their business models. And therefore, are they deserving of the same multiples because of the recurring revenue nature that had typically been the case for their businesses that was deserving of a higher multiple. That may no longer be the case. That is what we've seen. Now, whether or not the sell-off that has already taken place is discounting that already is certainly a key question.