leaders this month including video, auto, electronic arts, posting double digit gains and these are also leading stocks in the s&p this month. out west for the start of "squawk alley." thank you, very much, susan. good morning. it is 8:00 a.m. here at the code conference in palo verdes. "squawk alley" is live. it is 11:00 a.m. on wall street. ♪ good morning, welcome to "squawk alley." we are out of the code conference in retro pal less

verdes. sarah eisen and mike san tolly holding down the fort at post 9. the nasdaq hitting a fresh record high. a number of big names taking the stage on day one. from his relationship with washington to driverless cars to an impact on society. >> it is recurring panic. people get all amped up that they are going to take the jobs. the jobs that were taken by the auto was 1,000 x, the number that the black smiths have. they call it the labor fallacy, which is technological change causes productivity growth and that let's us produce more of what we can already make with less resources and let's us create. that's what frees up the spending power to create lots of new things and new demand. that's what creates new industries and jobs. 100 years later, we look back and think, i can't believe anybody was ever a black smith. joining us this morning,

karen swisher is here with us and walt mossberg. good morning. it is good to see you both. >> this illustrates the best the ability to take a moment to ponder some of the long-term effects of tech on humanity and economy. >> you are right. we had mark and reed hoffmann talking about those big picture things as well as the kind of more narrow things about what's coming in tech. we had andy ruben, the father of android, talking about he has got a whole new adventure about ambient computing, we talked about a week ago. the idea that computers are going to be all around us and he has a new company that's working on that. >> and steve ballmer. >> steve ballmer talking about how he is going to hold the government to account. >> this is a really substantive time. obviously, a lot of news this morning that is important to

silicon valley. we want to have really substantive talks on these issues. the theme, we don't have themes at code but the idea of silicon valley growing up and taking responsibility for some of its creations, we are not. probably not. we wanted to have substantive things beyond what is code. we need to understand that very deeply. >> something about what mark andrewson was saying, even those these are counterintuitive facts that might be true, it didn't feel true, the idea that things aren't changing fast enough. that's the problem and why middle america is so frustrated. people are getting laid off, people out of work, people working part-time who want to be working full-time. tell those people that things aren't changing fast enough. i don't know if they would take that so well. >> i'm an old labor reporter. i never forgot those years. mark andreson is a billionaire sitting there saying this. it is not that he is

intellectually wrong. if you say that, exactly what you said, say that to somebody who has already been disrupted by robots or globalization or something, this is a big part of why donald trump got elected. all these people aren't racists. a lot of them really have suffered. they don't know where their next job is coming from in this changing economy. i know mark understands that. he is dealing with a big picture, 20 years out kind of look at things. that doesn't help the person sitting somewhere in pennsylvania who has a problem. i also will say one other thing about mark who i admire very much and i have known since the netscape days. at the end, he said, i have one solution. let's move the government agencies out of washington to the heart land. as somebody who has lived in washington for a long time and could have had the government, of the 2 million or so civilian government employees, a

minority, i think 400,000 or something are working in the washington area. it is already way spread out into the west, into the midwest. because senators and congressmen put branches of these agencies everywhere. that's not going to help the employment problem. >> it is interesting to see the perspective from the powerful people that are making the investments for the future. they are leaning into the future, automation, robotics, self-driving cars. read hoffmann when he was talking about social media, he said i think they are not taking up our time. i was like, i don't know where you live. is it a good thing? is it a bad thing? we are going to talk more about that with hillary clinton, issues around facebook and face news. the impact of silicon valley. there have been reports that president trump is going to pull out of the paris accord. that's a big issue for silicon valley. there are a lot of major issues they have to begin to grapple with. >> does that tie in with tech taking responsibility is this.

>> are they going to? they don't seem to want to. they want to say it is all going to be good eventually but the getting there is the hard part. around issues of diversity and all kinds of issues. it is a much more serious time. we have ruth porette from goodle and jill saloway and lorraine jobs tonight along with senator camilla harris. there is a lot going on. >> we are sort of like the annoying relatives. >> i wonder, we talk for our purposes on air, talk about valuation all the time. >> we noticed. >> i wonder if you think it is the market coming to terms with things like ambient technology, computer to computer, things that you have written about, as big secular change. you think that's what's going on? >> right now? >> yes. >> i'm sure there are some people in the market that are looking ahead to that. but i think this is ten years out. the full realization of this is

ten years out. the market will come along and make its judgment. i think it is a little early on that to see it show up in the markets. you are better at markets than i am. that's just my guess. >> the things that mark was talking about are big areas, health care, transportation, education. tech really has an impact. fast change versus slow change, he is entirely right. fast change is media or entertainment or whatever. >> retail. >> all that impacted deeply by technology. now, the next part is that. >> you have agriculture, bigger industries. >> andy ruben, the father of android, had the gaul in 2017 and introduce a new phone and a new operating system for the home. >> and criticize android. what occurred to me here is in

washington, silicon valley feels like, have they no respect for history with this trump budget. this has never worked before. andry ruben is coming out with a phone when nobody has been able to breakthrough in the premium smartphone for years. silicon valley knows how to ignore history too when they have their mind set on it. >> andy -- well, it is more than a phone. he is starting with a phone. he is writing a new operating system. the phone is android but it is the only product he is doing that's android. the rest of it is going to be this operating system he calls ambient o.s., an interesting coincidence. it is going to have a home device. he has more devices coming and more tech coming that's all supposed to talk to each other and simplify tying together all these new gadgets. i have to say, i have done them a long time. i have a lot of respect for him. you will notice that i said to him, why are you doing a phone? why isn't this just another

android phone? i thought he was going to say, it is a fabulous phone, kind of a niche thing for people that really want it. he said, no, i'm going for scale. i'm swinging for the fences. he is pretty well funded. i would just make one point. he said he had hundreds of millions of dollars, which i'm not surprised. why wouldn't you take a risk on andy ruben? i would point out the marketing budget alone for the iphone and the samsung phone is hundreds of millions. that's just marketing budget. he has a hard road ahead of him if he is going to pull this off. >> let's listen to him make his case. here is andy ruben. >> so you can think of this as everybody is creating an island by creating their own ecosystem. everybody has a little bit of ambient. >> you were in that business. >> i won that business to some degree. so building bridges i think is the best way to describe what we are doing. >> this home device is going to be able to talk to any phone? >> it has to talk to all these

ecosystems. >> light bulbs, door locks. >> whether it is smart things or home kit or google home or thread or qualcomm standards. so, yes, it has to be the bridge to the islands. we are doing it from an interop ability u.i perspective. >> we are in this in-between time as far as big trends and technology. in these times, we often think mass customization and mainstream robots are going to be the answer. every time we are in these in-between times? >> i think robotics is critically important, a big and important new industry. most people in tech agree. the same thing with automation. a.i. is the big hyped thing. as mark pointed out, just because silicon valley floods into a.i. oro brobotics, doesn'

mean it is wrong. the self-driving cars, if there were too many. >> it doesn't matter. >> andy also said the robot that everybody is going to be first familiar with is a self-driving car. his point, i want to make a comment on what he said. he said he is going to talk to everybody. that wasn't in that clip. he said he is going to talk to siri and google assistant. he said, i want you to use whatever assistant you are using, whatever device you have, even if you don't have my phone. if you go up to my home device, my echo competitor, echo show competitor, and you want to use a siri command or a google assistant command, i'll support that. i'm thinking, or i said to him, is apple going to really want to you do that? do your old friends at google? you're not running android. you are running your new

operating system. are they going to let you pour over it? >> sound like netflix wanting to say we want to work with itunes. >> you are showing your age. >> i like how you are referring to robots as male. >> robots are gender neutral. >> they are all women, actually. >> one last question, walt. your involvement in code in the years to come. you have done your last column for "the verge." >> my involvement in code? >> he is totally out and coming back any time he wants. he gets a free pass and we get him on stage. >> you get a heckle from the audience? >> no, he is not. walt will always be part of code and he knows that. >> thanks. >> and we'll bring him back and drive some internet executive crazy. >> it is a lot of work, guys. >> yes, yes. we will put him on all the hollywood people. >> guys, can't wait for today to begin. good to see you both.

walt mossberg and kara swisher. good start to the hour enjoying these conversations. want to check on stocks. major averages are down across the board after the nasdaq briefly touched another record high earlier this morning. so, overall, a winning month of may. it looks set to end on a losing note, at least so far. the nasdaq down about .25 of 1 percentage point. one name to watch is michael kors, hitting a 52-week low, getting slammed on disappointing store sales. the stock is down almost 10%. we are watching shares of alphabet under pressure after coming within striking distance of that $1,000 mark. it got to $999.60 and pulled back. financials are also under pressure. i guess that yield pressure, lower yields and really across the yield curve, just weighing a loss on these bank stocks.

>> the market started to back off shortly after the data came out. the chicago pmi was a miss and pending home sales. it wasn't really dramatic in terms of the magnitude or the miss. it seemed like the bond market rallied. the ten-year yield went down below yesterday's low. we are talking about very small increments. it seems as if equity did. the banks, you see goldman sachs there at levels it was trading at a couple of years ago. a lot of throwing in the towel on those reflation trades. obviously, it has been going on for a while but now it seems to have accelerated a bit. >> tech stocks have turned lower. they are weighing on the s&p right behind financials. boy, what a month they have had. the nasdaq is still up more than 2% for the month of may. by far, the best performing sector of the year and the month. giving a little back today, not much. >> not that dramatic.

also, the last day of the month has tended to be weak for a long time now. i think four of the last five, may 31st have been weak as well. >> profit-taking. >> mechanical stuff. when we come back on "squawk alley," we go back to the 2017 code conference out west with netflix ceo reed hastings. john fortt caught up with former microsoft ceo, steve ballmer. talking everything from hardware to owning the clippers, of course. "squawk alley" will be right back after this. >> you are investing in an appreciating asset that delivers no profit. can we at least analyze customer traffic? can we push the offer online? legacy technology can handcuff any company.

but "yes" is here. you're saying the new app will go live monday? yeah. with help from hpe, we can finally work the way we want to. with the right mix of hybrid it, everything computes.

we are told the pyramids werewhat was that?ombs. nick! [ gun shot ] but the truth is... they're prisons. do you have any idea what you have unearthed? [ suspenseful music ] who are you?

she's unlike anything we've ever faced. the mummy. rated pg-13. experience it in imax. welcome back to the 2017 code conference. joining us, julia boorstin. >> we are joined by reed hastings, fresh on the launch of "house of cards." new season. >> it is extraordinary. everyone is a little tired of politics. house of card has a very fresh take on chaos. >> is it driving more viewing to "house of cards." >> it just launched yesterday. when you see what can happen with frank and claire underwood, it brings appreciation we are not in total chaos. >> can you give us any sense of how many people watched the first night of house of cards? >> absolutely not. it is one of the great things

about netflix is we don't have to release ratings. each show gets to have its own audience. around the world, "house of cards" is super popular. >> amazon and hulu is streaming direct to consumer like netflix. are you seeing any impact from their investment? >> both of us, amazon, us, hulu and a lot of international players, sky and gleam and others are investing in original contact. people want on demand. they want to be able to control when and how they watch. with that, we are growing a whole industry. yes, it is competition that hurts and on the other hand, it is getting internet viewing more popular with everyone. >> you said you are going to spend $6 billion on original content this year. how much is that going to have to increase in light of everyone else getting into this game as well? >> a lot. as we grow the membership base, we want to grow the content budget. there are so many great shows on

netflix but there are so many great shows we don't yet have. we are going to continue as we grow the membership base to try to get more shows and more movies. >> can you give us a sense of how much that spending is going to ramp and how much will be because of competition? is that going to push prices up? >> it really has. been great for talent and writers. there is so much competition with all the new players and the existing players, like hbo, are beginning to grow. it is this new age of television. nobody is sure where it is going, except for the quality of movies and tv shows is continuing to decline. >> the quality may be continuing to decline. what's the impact on the movie business? the u.s. box office had its worst weekend in 18 years. is that because of netflix? >> it is probably because of the internet, not just netflix but people watching on youtube and amazon and netflix. all of the internet consumption is getting better or it may be just there was no great big

movie opening. >> reed, tell me the impact of comedy. dave chappelle was probably big for you guys. i saw minage just launched over the past few days, ali wong has been buzzy. is this something people are like to repeat watch? how does that affect your subscribers? >> first, they did comedy like master of none and kimi schmitt and there is standup comedy we are doing really well in. you try to develop talent when they are early in their career like ali wong and epic like dave chappelle. >> do people watch it differently? >> they watch it how and when they want. some people watch it on the phone. some people watch it on the big screen tv and people do repeat

watch those shows in particular. >> one of the other categories you have been moving into is movies, war machine, cost you $60 million and you also put it in theaters last weekend. was that investment worth it, putting it in theaters and spending $60 million to make it. >> some people love to watch in the movie theatres. we want to have consumers be able to choose. so far, the large chains have not carried these films, so they are in very small theaters. we hope over time that the theaters will wake up and say we should provide consumers choice. we are into giving consumers choice. they can watch it on netflix or in the theaters the same day. >> do you think you are going to be able to pressure theaters to change the whole model? >> consumers may pressure the theatres. we are trying to produce the greatest content and have it be on netflix. we are also open to the movie theatres. some people would prefer the big screen experience. that's fine. >> do you think other studios

will follow suit and try to close that window between theatrical release and home video? >> there are some great articles. four studios have agreed for the movie to do xfrnlts. . it is hard to say. >> they argue the street may be dramatically underestimating your long-term? >> underestimating. that's a different question. >> i know. maybe undercounting your long-term sub-base domestically. why aren't you more aggressive with the street and promising more on the out years? >> except for visiting request you guys once a year, i don't spend a lot of time on the street. it is focused on how do we make the best experience possible and that will determine our growth. we focus on the shows, streaming, interface. >> is the rate of cord cutting, is that forcing you to recalibrate your long-term expectations? >> very few people have cut the cord. we are about 50 million in the

u.s. we have seen maybe 2 million or 3 million of 50 cut the cord. don't think of it as a big overlap that we are driving cord cutting. in general, it is like 2%-3% per year, like broadcast ratings over the last 30 years. it will take a very long, slow, secular decline and then they will adjust the economics. >> do you think you are nearing situation here in the u.s.? you are investing in aggressively expanding abroad. do you think here you are reaching saturation? >> absolutely if we kept the product the same, we said no more improvements but we are continuing to improve netflix. we have hd, 4 k and hdr. if you buy a new tv, it is incredible how it looks. it is much better than a movie theater. we are adding more and more shows. we keep pushing off that saturation. >> as you improve the product, are you going to need to raise the prices as you have in the past?

>> what we have done is kept our base price, $799. it has been eight years. we have moved the hd but the base tier has stadium the same price for eight years. you get all the content. it is completely unlimited. >> let me ask you about devices. how much volatility is there in the way people are watching, whether it is on the coach watching a big screen tv or watching a mobile device, specially now that you can save the content and view it offline? >> the offline viewing is great for airplanes and those kind of situations. most of the viewing is still on the big screen, on the television. >> there is not a big shift toward mobile devices? it is pretty stable? >> it has been remarkable over the past ten years of streaming, it has been about two-thirds of the viewing is on large screen televisions, either from your "x" box or playstation or directly with the smart tv. >> is the same thing true overseas or are you seeing different viewing habits? >> in asia, it is much more mobile phone centric.

does that change the way you program when you expect people to be watching on their phone and television. >> when you get used to watching on a mobile phone, you watch all kinds of content and sports on a phone. you adopt to that. we are just doing great content and it is available on any screen. >> what's the effect of 4 k on the volume of consumption? if somebody has that big, rich screen, are they going to watch more netflix because you have more 4 k content? >> you paid $1,000 for a new television, you are going to use it. you look for the shows and the images. with that and with hdr, which has a color intensity. the makes the tv just pop. >> should we look at 4k tv sales as an indicator as far as engagement in netflix? >> absolutely. 4k transforms the in-home experience. that's one of the big drivers and with mobile on the low end. >> we talk a lot about machine

learning. how much better is the algorithm in having a suggestion for you than it was five years ago? >> it is hard to be precise. it feels a lot better. some of that is because we have more shows and some of that is because the algorithm is better. we are investing heavily in those areas. we wanted you turn on netflix and there are four choices and you want to watch them all. to get to that consistent view is where we are talking about. >> i wonder if you ever find yourself watching netflix at home and scrolling through dozens and dozens of things and you don't want to watch any of them? >> i have obscure taste. i just watched this swedish movie we have on netflix. it is a family. an avalanche comes and the dad panics and runs away and leaves the family to die. then, the avalanche turns and doesn't kill them and they have to piece back together their marriage after this dramatic event. >> not necessarily a

recommendation. over the past 15 years, you have really transformed the company in different ways. what is going to be your next act? do you need to invest in news and sports as sort of the next thing for netflix? >> no plans on news and sports. those are tough businesses. we have a lot of room to grow, unscripted. we are really going to focus on that on a global basis. >> what about globally, is there any way you invest in cricket rights in india or other international sports rights? >> we would do movies about sports. that would be a good area for us. it is things you want to repeat view that you don't only want to consume once. the warriors and the cavaliers are going up again. people will be intense on that and then afterward, there is no after viewing. our shows, there really is. >> as amazon prime tries to recreate what netflix is doing, what do you make of them buying

the nfl rights? >> they are so scary. everything amazon does is so amazing. how are they doing so many business areas so well. they are trying to repeal the basic laws of business. we are continuing to watch them and be impressed with them. >> are they your biggest threat? >> they are awfully scary i would say. >> in terms of streaming options, we have talked about subscription fatigue for a long time. you think we have topped out on that? are there too many options to stream right now? >> i think there are lots of new providers like in the us, cbs all- all-access, around the world. all kinds of new options that give people opportunity. it is like saying there are too many mobile phone apps. you probably only pay attention to 30. different people have a different set of them. i think it is great. >> do you think about leveraging your subscriber base in different ways? people talk about credit cards

on file as being an enormously valuable be asset. you have a lot of them. you could bolt on other people's subscription services that perhaps have nothing to do with content. is that something you thought about? >> if we try to outamazon amazon, that's a losing battle. we have to be the specialty play. we are trying to be starbucks and they are trying to be walmart. we have to have brand intense love and focus. what they do is incredible. we wouldn't focus on those things but how do we be the embodiment of entertainment, joy and movies and tv shows. >> what about internationally? last january, you launched 130 new markets at the same time. was that too much to do at once? >> maybe but it was fun. >> some of the markets you are pushing into like quand aindia south korea, is it harder to master the local language content? >> it is definitely more complicated for a u.s. company.

for an indian company, they feel fine about it. >> for you, is this going to be a bigger barrier to growth in those markets? >> yes, we have a lot to learn. we have done awfully well in latin america. >> what about china. you are licensing to china. are you still trying to launch there or is that off the table? >> i think that's off the table for the next couple of years. >> is the trend toward producing incountry or trying to am moretize the same product across many countries and languages. is the trend towards higher budget, marco polo ish or keep under control? we have a german series that is dark, science fiction and will be a big global winner. 3% out of brazil has been very popular around the world. we are doing a number of shows

outside of hollywood and a number inside. >> how important is it to have a really good batting average and good data behind it if you are going to make those big budget betts? . >> a bunch of those will sink a studio. >> i hope our hit ratio is way too high. we cancel very few shows. >> it is hard when you don't get ratings. >> you can tell when we cancel a show. i have to push the content team, you have to take morris cans and try more crazy things. we should have a higher cancel rate overall. what you get is you get some winners that are just unbelievable winners like 13 reasons why over the last three years has been a great hit. we didn't realize how it would catch on. >> what's the high water market of crazy? >> i don't know. i will have to think about that. >> you define it by how many new subscribers you get? >> mostly, it is how many people

watch it but those are very connected. >> you say you were surprised at "13 reasons." are you green lighting by gut? are you using metrics and a.i. a? >> there is some analysis that goes on. i would say it is fundamentally a creative bet. we get to see in the fullness of time how it works. >> i know you are a big advocate for net neutrality. how concerned are you about president trump's administration to change the rules? >> we'll see if they do. that would be unfortunate but it is probably going to happen. i don't think it will be a big deal. the principles of net neutrality are very accepted by all the large isbs around the world. in many countries, we don't have net neutrality laws but we don't have problems either? >> will it raise your cost if the rules are changed?

>> i don't think so. that would be very unlikely. net neutrality is really important. i think basically there is a consensus amongst isps around the world to follow those rules. >> if anybody in silicon valley should be freaking out about title 2, it should be you. why is everybody else freaking out? i am guessing that you are saying that because your subscribers would pitch a fit if you told them your isp is getting between you and your house of cards? >> we are one of the largest suppliers of streaming. we are relatively well insulated. the real impact about net neutrality would be on small firms, the netflix of ten years ago. it is super important for the society. even if they unwind the title two rules, my guess would be that the net neutrality principles are still followed. >> we are larrying a lhearing a the trump administration. are there any other issues you

are concerned about, such as immigration? >> there are many going on but we are focused on the entertainment, the "house of cards" aspect and give people a little relief from all of the stress. >> is it harder to find story lines in politics that are unreasonable or entertaining enough? >> i think you could never have imagined the current situation. >> do you see viewing habits changing in light of the political climate? are people trying to watch different kinds of shows as a result of it? >> we are very global. we are about 50% of the members are international. there are different situations all around the world. no big change on entertainment. it is really driven by the internet. >> last time we spoke, you said you were most excited about "the crown." what's the show you are most excited about now and has the biggest impact on netflix? >> "glow." it is a follow-on to "orange is

the new black." a set of women wrestlers from the 1970s. it is spoof and funny. that will be coming out a few weeks after "orange is the new black." >> have people come to terms with adam sandler's success on netflix? >> yes. he won great critical award at the cannes film festival. he is so versatile. people want to box him in and think he is a certain guy. he is much broader and really entertaining. >> ted, once again, going with casting off type. >> ted "genius" sarandos. >> is it important to you that a film is able to be considered at cannes? >> sure. the establishment often closes rank against the insurgent. we recognize that and play it for all its worth. it is a great system for us to get these systems out.

it is an extraordinary film from a well-known korean director. i think it is going to be one of the most fascinating and different kinds of films that you see this year. >> thank you so much. >> reed hastings, thanks so much for joining us. we really appreciate it. >> a fascinating day here. sarah, back to you. >> carl, john, julia, thank you and to reed hastings as well. mike and i are sitting here, watching the market action, reaction. netflix is down today. boy, it has been such a moon shot, up 30% so far this year, up 50% this month. it doesn't count some of the years so far. haste hastings is just focused on the content. he is not worried about managing expectations. >> it kind of distinguishing netflix from the rest of fang,

that are just conduits for ad revenue. a lot smaller and a lot more specialized. that's the intent. i have always been impressed with the way hastings has a very clear vision of what netflix is, what he wants it to be and what it isn't. he tries to get around that whole oppositional view between netflix and the cable bundle. it is not really the story. >> he also names the competition by name. he said the word amazon. they want to be walmart. we want to be starbucks. we are specialty. they are going for everything. >> we want to be known for the best shows, for the shows that we always want to watch. we'll see how far that takes them. >> i wrote down what he said and the new one after "orange is the new black." >> '70s, female wrestling, big passion project. >> much more on the exclusive interview with reed hastings. we'll check back with the guys

at code and steve ballmer sitting down with our very own john fortt. a lot more to come on "squawk alley." fidelity, where smarter investors will always be.

relieve goods arriving in sri lanka after floods and landslides hit the country killing more than 200 in recent days. authorities say 97 people are still missing and hundreds of thousands have been displaced. nasa releasing animation of its historic mission to touch the sun. solar probe will launch in the summer of 2018. that spacecraft will be placed in orbit within 4 million miles of the sun's surface. that's the news update this hour. back out west to "squawk alley." carl, you guys are making me homesick for california. >> thank you very much, sue.

here is what reed hastings had to say about amazon. >> she are so scary. everything amazon does is so amazing. how are they doing so many different business areas so well? they are trying to repeal the basic laws of business of limited capability. we are continuing to watch them and be impressed with them. they are help tog grow ting to industry, because they are investing in the content. joining us this morning, jeff richard, mark mahaney and john fortt here with us. good to see you, guys. great discussion with reed. it fits in with the overall tone of code. these giants are duking it out. what did you make of it? >> amazon is spending close to $4 billion a year on prime video content. our survey shows that these are complimentary services. we saw higher subscription rates to netflix from amazon prime

than regular customers. it seems like the bigger trend is the description of the big bundle. these are two winners of that description, amazon with prime and netflix with its own service. >> that will overlap in a sense? >> yes. i think subscribers in the future will pick both, amazon prime customers and netflix customers. $10 a month, netflix is still a great deal. >> does that mean you don't have to choose if you are picking stocks? >> we subscribe to youtube red, spotify, apple music, amazon. i think the subscription economy, you are going to see a ton of the companies benefit, including a ton of the companies that are here today. let's not forget amazon. amazon is trying to do so many things, taking on ibm and hp with their $14 billion aws business and duking it out with retailers and taking on netflix. i think that is the more interesting story line on what he said. this is a big, scary animal

that's trying to beat down the laws of physics. it is pretty awesome. >> he is telling his content team their batting average is too high. they are not taking enough big risks. as an analyst, does that make you nervous? >> a little bit. i have had a couple of meetings with reed. i don't think there is a limit to how much they are willing to spend. they look at the number of viewing hours generated by the content. viewing hours go up, satisfaction goes up subscriptions go up, it is all right to spend more on content. i think they are doing it relatively efficiently. we know that by looking at the u.s. market where they spend more and more every year. their margins and subs have gone up. if they can replicate that in international markets, it is okay. >> it is a bit of a black box. he is not playing money ball but trying to hit home runs. does that introduce a level of risk you know how to model? >> i think we can model it. there are a couple of countries where he needs to hit home runs. i don't think western europe,

latin america, north american. he hasn't got to first base in most of the asian markets, japan, south korea and india. that's where he needs to hit home runs. whether he can do it or not, that's the risk. the investment story has played out kind of according to plan. >> how do you invest in a world of netflix and amazon in these two giants are spending na muth much on content. how does that change where you put your money? >> content has been a very tough area for venture capital. you need a lot of money to go up against guys that can spend hundreds of millions producing the content. in the retail sector, you are seeing some emerging companies, wish, house, fanatics. these are companies that aren't yet household names but doing billions of dollars in annual gmv and sales. they are creating specialized, mostly vertical categories to go after amazon. it is tough. amazon is a ruthless competitor.

you have more than 50% of u.s. households with amazon prime. >> we did ask them about amazon and hulu and netflix and whether or not there are too many streaming options for consumers to mentally absorb. here what is he said. >> amazon, us, hulu, a lot of international players, sky, gleam are investing in content. people want on-demand to control when and how they watch. with that, we are growing the whole industry. yes, it is competition. that hurts. on the other hand, it is getting internet viewing more popular with everyone. >> he also argued that cord cutting is going to be a slow, snaillike, not a big cliff that we fall off of? >> for the younger generation coming up now and hitting college, i don't see those people subscribing to cable. i don't see that happening. my kid don't think a lot of time thinking about what's on at what time. they are focused on what they

can get on their mobile devices. asia, most of the consumption is on mobile devices. people don't think a lot of time about what's on the channel guide. >> i am too conservative? >> i think the up side for netflix is enormous. the next generation of consumers is going to produce media in the way netflix produces it and puts it out. >> there are 1 billion cable subscribers and maybe 150 million subscribers worldwide. my guess is that they will meet. whoever is the leader in streaming, that subscriber base could double or triple from here. that's netflix. >> what a race. it makes pepsi and coke look like childs play. >> thanks so much. when we come back, steve ballmer on everything from owning a sports franchise to the future of microsoft. hi i'm joan.

coming up on the halftime report, they've all weighed in on the rally and risks. now it's mark faber's turn. he'll join us with his take on the markets. plus, the comments that should have every investor and banks worried and andrew left just made a change to exact sciences. that stock soaring at this hour. we will discuss at the top of the hour. john, we'll see you in about ten. >> scott, looking forward to that. former microsoft ceo steve

ballmer joining me here at code. we covered a lot of ground from hardware to amazon. >> i think we did a good job building profits. over time there's some correlation that has to exist between stock price and profits. this says we're going to be very long term patient with some market caps that are way out of whack with the current earnings but i feel like we did our job. our job was to drive up earnings. that's our controllable. stock price is not our controllable and i'm glad to see the company getting the recognition it deserves not only for past work but the work that's been done since i left and i think -- frankly, i don't think the stock price had any chance to move as long as i was ceo. people were locked into a world view of how things worked. the changed ceo and people step back, okay, let's think about this again. we picked an incredible successor. he's doing an absolutely incredible job. he was able to get people to

take a fresh look at the company. >> did you change your mind about amazon? >> obviously i would have been wrong in anything i ever thought about amazon valuation. they built an incredible asset. the question is, what does that look like in the long term for profitability. i don't know. i don't know. at the end of the day right now since we talked about amazon, you can think of the investment in the sports team is like amazon. you're investing in an appreciate asset that basically delivers no profits. >> data is an important foundational layer to what's going on right now with artificial intelligence. how much of that was starting to percolate up when you were leading microsoft as ceo. is it developing at the pace you expented? >> i think things have moved in some ways more slowly than i would have expected? >> really? >> yeah. i think augmented reality has come slower. we made a big investment in

hololens. that's what i've seen happen. but i'm glad to see the energy around the topic because it is the frontier of innovation. >> easier or harder to watch somebody else run a company that you certainly helped to build? you're still the largest shareholder by my count. >> first year was hard. i mean, we made a very good decision, two good decisions. number one -- well, i made a very good decision i'll say. when i stepped away, i stayed on the board. i came off the board the day i bought the clippers which was whenever, august of 2014. it turns out that was really good. not having me around, not having me, you know, sort of in the building, i've only been back in the microsoft campus once i think since i retired. >> once? >> yeah. i still see microsoft people, we just don't meet on campus. it just meant, be hey, this is your railroad, sachya. you run it. doesn't mean we don't speak as

investors or friends. they welcome my product or don't welcome, but certainly i get invited to give product feedback, when i have it i'll shoot satya a little note and he'll ask people to follow up. i think it really was good for me to separate. it was really good for the company. >> if you were just starting out right now in your career, what company would you be joining? >> if i was just starting out now in my career, i'll tell you a funny story, i never thought i'd join a small company. my whole mind set as a kid when i was a kid but as a young adult was to go to a large company. >> you went to a large one at first? >> procter & gamble. my father was at ford. i was thinking of going to ford. i think getting into the energy business, broadly defined, which would include tesla, i think there's going to be as many opportunities to make a difference there as anything we'd find in information

technology. >> he has softened on amazon. he criticized for not making a lot of money and surprisingly augmented reality not moving as fast. often we hear things are moving as fast as anyone exexpected, n steve ballmer. >> i'm struck by how code helps you talk about the future and puts the past in perspective. now they talk about amazon. >> now they used to talk about apple and now it's shifted to a services economy. >> changed. fascinating. great interview. squawk alley continues after this. when i call usaa it was that voice asking me, "is your daughter ok?" that's where i felt relief. we're the rivera family, and we will be with usaa for life. welcome to holiday inn! ♪ ♪

whether for big meetings or little getaways, there are always smiles ahead at holiday inn.

one thing about code, it always starts off with a bang. ballmer and andriesen. reed hastings will take the stage. hillary clinton, jeff buchas, sherry redstone. >> three main themes that i'm seen. what comes after smart phones, what comes after broadcast media, what comes after facts.

is it better data that comes next or something else? >> the point about big tech growing up, taking responsibility for some of the things they've brought, namely information and facts is going to be dealt with today big time. we'll see what goes on inside. let's get back to headquarters. scott wapner and the half. welcome to "the halftime report." we begin with another major market watcher weighing in on the rally and the risks. mark faber best known for his doom, gloom report. also for us for the hour, jeff chernova, stephen weiss, kerry finerstone. kevin o'leary is here as well. we begin though with the man who says there is a bubble in u.s. stocks. mark faberer