Closing Bell - Closing Bell: AI – Hope or Hype? 5/18/23

Episode Date: May 18, 2023

Apple,  Alphabet and Microsoft all getting in on the AI battle. But is all of this AI hope leading to way too much AI hype? Stephanie Link of Hightower, Joe Terranova of Virtus and Big Technology’s Alex Kantrowitz give their expert takes. Plus, Sofi’s Liz Young reacts to St. Louis Fed President James Bullard’s comments on inflation and future rate hikes. And, Netflix shares surged in today’s session despite worries surrounding the writer’s strike. We dig in on what’s sending that name higher and what it could mean for the rest of the streamers. 

Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the AI arms race and as whether the stocks tied to the transformational technology can continue to climb as they are yet again today. Here's your scorecard with 60 minutes to go in regulation. Dow's been in the red all day. Take a look at the Nasdaq, not in the red by any stretch. It's near 1% higher. Apple and Alphabet, Microsoft, Nvidia continuing to rise. Even interest rates moving higher on more hawkish Fed speak. That's unable to derail the tech trade, though.

It leads us to our talk of the tape. Is all of this AI hope leading to way too much AI hype? Let's ask our panel. Stephanie Link of Hightower, Joe Terranova of Virtus Investment Partners, and Alex Kantrowicz, big technology founder, all three are CNBC contributors. Alex, you first. What do you make of this latest, the iOS announcement we got today from OpenAI? I think what this does is it puts OpenAI in position to almost supplant the operating system on iOS. Now, it's long been this pipe dream of these tech companies to say actually using apps on the phone is fairly inefficient. What if

we put it all in a chat bot that understands who we are, understands what our credit card information is, understands where our preferences are, and if we get people accustomed to using that, you have power over basically all the apps on the store and you don't need them to go through Apple's iOS. And I think that's sort of where the big dream is for OpenAI when it builds this app today, is instead of just being one app on the phone, being the app that eventually goes through everything. All right, Joe. I mean, it sounds potentially transformational in so many different ways, as this technology has just taken everything seemingly by storm, but six months ago at the most.

Too much hype? Totally justified? How did you answer that? In terms of time and price, it is incredibly early. Think about this. We're only months into this being the thesis in the market. Thank heavens for generative AI. Otherwise, I'm sitting here talking constantly about the Federal Reserve, monetary policy and earnings recession and China weakening. It's real. Think about exactly what generative AI is able to do in terms of elevating productivity for companies. It's creating content, which is much different than what artificial intelligence was doing, which was creating outcomes. And the companies that are the leading contributors in that effort are all the companies that are growth at a reasonable price. Those are reasonable price because that I'm glad you went there because that remains a debate.

OK, that's where you get the growth in AI, whether it's actually at a reasonable price is the central discussion right now, whether the valuations of and I don't care whether it's actually at a reasonable price is the central discussion right now whether the valuations of and i don't care whether it's apple or microsoft are you going to tell me that nvidia is growth at a reasonable price right now that stocks up another five percent as we're having this conversation there's a significant premium that's being paid for the price of nvidia because it will be the leader when it comes to data center in contributing to this AI movement. That's why it's doubled this year. It is the leader.

So if you want to tell me that at some point you're going to experience a pullback in NVIDIA, how is that any different than the way NVIDIA has traded over the last five to seven years? If you've been an owner of NVIDIA, you understand that you accept extreme volatility. You ride the up, you ride the down but ultimately nvidia is going to be integral in the ai story yeah 318 is the 52 week it's a 316. it's been remarkable steph and yet you know you're underweight technology and i think one of the great conversations to have with with people who are underweight tech as you look at at this moment in time as to whether you're rethinking your own investment strategy well I've been adding to tech

for the last couple of months and so last year all year long I was 10% underweight tech and now this year I'm about 4% underweight still underweight but one of my biggest positions is meta and that that kind of I mean the stock has been up remarkably so, right? And I've been trimming it, but still. Another one that's up 100%, along with Nvidia. Right, right. Year to date. Right, but so Meta is a big position.

Broadcom is a big position. Both of those have AI components to them, but it's not just AI. But it's interesting because we talk about total addressable market within AI, and we know it's probably gonna be something like $2 or $3 trillion market by 2030, growing at about 40%. We know only 25% of the companies in the U.S. are actually implementing AI.

So there's a long runway. And then we focus on, is it just technology that's going to benefit? No. Of course social is benefiting. They're going to spend $250 billion between now and 2030, like the metas of the world, the alphabets of the world. But what about robotics? What about in the agriculture industry? That's actually going to be a $9 billion market by 2025, growing at 35% compounded annually. When you talk about growth at a reasonable price, I think of John Deere, which I used to own, which I don't anymore.

But they're going to benefit substantially, not only from the growth, but also from the margins because it's such a productivity enhancement. And then healthcare, smart healthcare. We don't talk about smart healthcare. Think about something like a J&J or UnitedHealth. Those companies are going to benefit substantially. So there's a lot of ways to play AI. I don't think it's just technology. Yes, I am underway tech, but I have actually a lot more exposure elsewhere that is capitalizing on this theme. Alex, well, how would you answer the question as to whether there's too much hype around all this hope? I think there is a little bit too much hype. And the reason is, is the AI that Stephanie's been talking about has been stuffed in the works for a long time. And we've seen this inflection point come when generative

AI enters the picture, when we can start creating images and audio and video with AI, when we can start talking to this computer or the computers as if they're people. But actually, the core innovation underneath the surface has always been this optimization tech, has been the tech baked into industries like healthcare, for instance, like agriculture. And I think that, yes, this is going to change the interaction layer on computing, if you can speak to computers. But for investors to just pick up on this now, while all this stuff has been going on, you know, in the past, does seem to, you know, indicate that it is what many of your guests have been saying recently, which is that there's a little bit of a bubble that's forming right now.

Yeah. Give me an idea, though, of how this specific iOS, for example, and by the way, you know, OpenAI suggests that Android's next, so it's coming to a mobile device or really anything near you sometime pretty soon. How do you see this playing out in a fundamental, literal way for the user? Well, first of all, if you're Google, hearing that this is coming to Android devices isn't going to make your day because it is at the end right now, it's a search opportunity. And so if it's on Android, if people start going to chat GPT as opposed to using the built-in search for Google, that's rough. But ultimately, every app is going to start to have to consider the

power that this chatbot might have. If you're, for instance, booking a flight through Kayak, are you going to go through the Kayak app or are you going to use the Kayak plugin within chat, GPT, that again, knows your name, knows your credit card information, knows that you like the aisle seat or the window seat and understands where you usually fly and might even be able to present deals to you. So, you know, this is optimistic. This is the thing that every chat company has been trying to do for years and none's pulled off. But ultimately at the end, you know, if you're looking at where this could possibly go in the most optimistic way, it is that most of the computing on the phone goes through chat apps, whether it's chat GPT or Bing or Google's Bard.

Are you suggesting that this puts more pressure on Alphabet than already seems to exist, whether that's a false narrative or not? Yeah, definitely. I mean, if it's on the phone, right? I mean, Alphabet has transformed from effectively a website on a browser to the browser itself with Chrome. And now Android is one of its most important properties. So now you're taking effectively what could be Google's worst enemy and you're entering it as an app, not a website, but an app, which makes it much more user-friendly and you're putting it on the phone and you're telling users, hey, take your pick. You can use the old Google search or you can use Google's new chat capabilities like Bard, or you can use ChatGPT. Now, if you're Google, you want that real estate all to yourself, right? So it kind of is

unfortunate to have open AI there, but open AI is there. And so if you're asking about like a magnitude of pressure, it increases right now, no doubt about it. Yeah. I mean, you, remember, sold Alphabet to get into Meta. And I'm wondering, honestly, because I mean, when you did that, AI wasn't even part of the conversation, but now that it is, why can't you own both? I think you can, but I would prefer Microsoft, to be honest with you. Why can't you own all three? You probably could, but I mean, 7% of my portfolio is meta, right? So I don't want to be too big there, but I think Microsoft has a lot of ways to win.

And I know we're talking about AI, but we're not even talking about, like, let's just say the PC market actually is troughing and you see some upside. Then numbers from the old line businesses that we think we know about Microsoft can actually contribute. So kind of what I want to do is have diversification, have AI exposure, but have other stuff, right? And I think you can say that about Alphabet for sure. I just feel like Microsoft's probably the better of the two. What do you make of Joe's suggestion that these stocks are trading at what he said was growth at a reasonable price? Some are, some aren't, right? I mean, NVIDIA is not growth at a reasonable price, but they're a pure play, right? But Broadcom, as you know, I own, it's trading at

14 times, gives you a yield, is buying back $12 billion worth of stock, and they have AI exposure, also cloud, data center, et cetera. Wouldn't you want the pure play? I mean, I get that you can look out and find a number of stocks and a number of industries that are going to be impacted by AI, will take advantage of AI. But the pure plays right now, that's where the action is. That's where the money's going. Oh, but I own Meta and it's up 100 percent. So it's up just as much as NVIDIA is. Do you know that AI content for Instagram is counting 40%? 40% of the content is being used in AI and 20% for Facebook.

So that's not a pure play, but it certainly is a play that has a lot of exposure to it. This is the trade, Joe, that arguably saved the market. I mean, the rest of the market has been, you know, an underperformer. I know that people say that these stocks have made everything so top heavy, but you got to be, if you're bullish, the market, you have to be super happy that that's happened. Don't look at it as a negative because if this trade didn't happen, we wouldn't be anywhere near where we are now. Without question. So, analyze sector performance year to date. I think we have a graphic that shows this. Communication services up 27% year to date.

Thank you, Meta. Thank you, Alphabet. Technology up 25% year to date. Thank you, NVIDIA. Thank you to Apple. Thank you, Microsoft. And consumer discretionary up 16% year to date. Thank you to Tesla and Amazon.

Now look at the performance of the other sectors. It is ridiculously muted. And in some instances, you're actually seeing negative performance in the case of financials, energy, and healthcare. So it has saved the market. I believe that we are at the early stages of what? Analysts beginning to understand how they should model future growth in revenue from the contribution from the productivity boost that these companies are going to see. NVIDIA, probably a little rich in its valuation, but it's a pure play. Are there second derivative trades? Without question. Datadog, which will monitor the generative AI apps. AMD, they're both going to participate. Those are two names I bought recently. Those are names you

could be in. But if you look at the large mega caps like Microsoft and Apple and Meta and Alphabet, do we really know how much, how accretive productivity boost is going to be to revenue? Just look at like, you know, what was it? Not even 10 days ago, doing a virtual Sohn presentation, Stan Druckenmiller, right? One of the best investors ever, is talking about all of the caution that exists and the things that happen to banks and we had free money forever and all the reasons to be cautious. And then he talked about where he was actually putting his money. And it was, I think it was Meta, NVIDIA. He's playing that. Steve Cohen in the last few days speaking at an event talking about he's bullish the market. Why? AI goes to the point that we're talking about now.

Even in a very uneven and uncertain environment, there seems to be certainty around this. Whether it's justified or too hyped, that's for you to decide, not me. Did you download the app today? I certainly did on my iPhone. And I think a lot of people are going to download that. And to Alex's point, I think what that's going to do is it's going to put eyeballs on generative AI. It's going to put scrutiny on generative AI. You're going to have negative reviews on what the responses are going to be, but you're going to have awareness. And I think there's going to be the type of awareness that generative AI has not

had until this moment. What kind of risk, Alex, do you see in terms of the pure players, if you want to call them exactly that, on what kind of regulation may come down the pike? I mean, Sam Altman was on the Hill this week discussing that with a committee of lawmakers, and it's going to happen. We know it is. We just don't know what form it's going to take. Very difficult to regulate this type of technology. It's evolving so fast.

I mean, I just sat watching senators and members of Congress talk about regulating social media companies for about four years. You know, after spending all this time in and out of these hearings, having them dress down Mark Zuckerberg about what's going on at Meta, they haven't done anything. And so we'll see if they can keep up. Now, they're more serious about this right now. We'll see if they can keep up. And I think it's important to note who they're inviting down to speak with them, right? It's Sam Altman. It's the guy who's got this $10 billion Microsoft investment, who's leading it, as opposed to the upstarts. And there were some critics, but Sam was the headline there. And so if you're one of the big companies here, you're thinking about regulation. I don't think it's, you know, even top five on the list of worries that you might have. You know, we're going to ask our Twitter question in a moment. I'll front run it, though, because I want your

votes on it of the pure players, the NVIDIAs, the Alphabets, the Microsofts, the Metas. Which of those stocks has the best upside, do you think, from here? And taking into consideration, Steph, your Meta, which is up, as I said, 100% year-to-date. NVIDIA's up 100% year-to-date. So all you guys at home watching, you or wherever you are, you can think about the answer to the question and listen to what Steph and Joe have to say. What do you think, Steph? I'm a little bit biased, and I'm also valuation centric. You know that about me. That's me as an investor. So I would look at Meta, even though it's up a lot, a lot. I mean, it it trades at 18 times forward estimates. And I think it's not

what we initially talked about it being a cost-cutting story all of last year, and they've gotten religion on that, and now you have a growth story on the revenue side. And so I'm 18 times earnings for 30% earnings growth and double-digit revenues in the second half of the year. I don't know if that's 100% reflected into the stock because it was down so much last year, right? I think in the past year, the stock is now up 27%. That's nothing compared

to what some of these other stocks are. So I'm not saying NVIDIA isn't going to lead the charge. I just can't get comfortable with the valuation at these levels where I can on meta. Okay. What about you, Joe? Three critical words in investing, risk-adjusted returns. And you always think about that. When I think about risk-adjusted returns, the clear choice is Microsoft. Microsoft. Why over Alphabet? I believe that as we've detailed in length and we did last week, there's the management premium that Microsoft has over Alphabet. We had that conversation last week with Dan Ives and Mark Mahaney.

I believe that to be in place, and I think it's one of the reasons why Alphabet has suffered in the last couple of years. Alex, you're not a stock picker, but I'm sure you have a stock opinion. Let me go with the one that hasn't been mentioned, Alphabet. And I think that there are investors that have overlooked the opportunity for Alphabet while they've been thinking about the risk. Right. Sending the stock down when the demo doesn't work properly. That's carried over. I mean, they're doing OK right now. But I think the reason why you start to believe in Alphabet is because they're the incumbent. Right. They have a very strong AI capacity inside that company and they tend to figure these things out. And with all this attention that's gone to Microsoft and all this attention that's gone to Meta,

I think people are sleeping on Alphabet, and Bard gets better. Their generative search product that they revealed last week was pretty impressive. And so if I had to pick one, it would be Alphabet. Yeah, it's going to be fun to watch, which I think Alphabet's year-to-date gains, Joe and Alex, are better than Microsoft's.

So for all of the hating on the Goog, you've done all right. Well, a lot of money has to be spent going forward on generative AI. And I think Microsoft will spend the money much more efficiently than Alphabet. All right, guys, thank you very much. Steph, thank you. Joe, you as well. Alex, we appreciate it. We'll talk to you soon. Alex Kantrowicz, we're just getting started. Up next, insurance against inflation. St. Louis Fed President James Bullard shedding some light on where he stands on rates heading into the crucial June meeting.

We break down his comments, what it could mean for the broader market just ahead. You're watching Closing Bell on CNBC. All right, welcome back. 40 minutes or so to go in the trading day. Let's get a check on some of the biggest movers as we head into the close. Christina Partsenevelos is here with that. Christina? Well, let's start with shares of Sony because they're trading higher right now after announcing it's considering a partial spinoff of its financial arms. Sony would still maintain a 20% stake in the business and use the funds to invest back into its business. Recall that activist investor Third Point was actually pushing Sony to simplify it and focus more on its core competencies like entertainment and technology.

Adding to this rally that we're seeing today, Sony also said they'd be buying back shares earlier this week. Speaking of spinoffs, Chinese e-commerce company Alibaba plans to spin off its cloud division as a separate publicly traded company. The news, though, is still not enough to offset the miss in quarterly revenue. You can see shares are trading 5 percent lower right now. Scott. All right. Christina, we'll see in just a bit the S&P 500 trading near the highs of the session after hawkish commentary from St. Louis Fed President James Bullard sent stocks lower intraday.

Mr. Bullard saying that sticky inflation could warrant more rate hikes. Joining us now, Liz Young, SoFi's head of investment strategy. It's good to have you back. Good to be here. He wasn't the only one who sounded kind of hawkish today, right? Lori Logan as well. And there's been some others recently, too. Do you think we're underestimating how resolute the Fed is going to be and how sticky inflation might be? Well, I don't know that they even sent that resolute of a message last time. I think they opened up the flexibility to do a pause if they saw fit.

I think actually what's going to happen, and to be fair, I do expect a pause in June, but I think what's going to happen is we enter this sort of high and hold portion of the cycle, but the votes are no longer unanimous. We've had a lot of unanimous votes up until now. We haven't had dissents. Right. So I think we're going to start having them, right? And they may not yet be ones that push it in the other direction. I think Jerome Powell still kind of rules the roost in that regard,

and whatever he wants to do is what will happen. But if you get closer to kind of a 50-50 or real debates on the Fed, then they could get really interesting. And I think I've mentioned on the show before, this big gap between what the market thinks and what the Fed is saying is going to happen leaves us open for big movements in either way, depending on what the narrative is. So the major cautious view that I've heard recently, and I want your opinion on it, the worst is still yet to come in terms of regional banks because of problems with

commercial real estate. We haven't those haven't really manifested yet as it relates to CRE. The economy is going to slow further. Job losses are going to accelerate, which is finally going to hit the consumer. Inflation is going to be much more sticky at this moment, right, getting down from 5 percent down to the to to the target of two. And that's going to cause the Fed to be a lot more hawkish and continue to do whatever they have to do. And that's going to be a problem for earnings and stocks. How do you how do you respond to that? I mean, I think it's all fair. I don't know that the Fed needs to necessarily be that much more hawkish in their movements. They could be hawkish in their tone. Well, if they hike in June, okay, that takes it incrementally more hawkish.

And then if they lead us to believe, you know what, the meeting after that's live, too. That's hawkish. I mean, to be fair, they haven't admitted that they're considering cuts this year. So I still think hawkish is a fair way for them to act. But if we're looking at a scenario where they've said all along, we need to get to sufficiently restrictive and then we want to hold rates at sufficiently restrictive. By any definition, we're restrictive right now. We've got a Fed funds rate that's above inflation, regardless of the measure. We've got a Fed funds rate that's above the 10-year. So we're at a restrictive level. I don't think that another 25 basis points is going to be suddenly the thing that says,

OK, that's it. That's restrictive enough. I think we are right in the window, not I think, I know we are right in the window of when long and variable lags of monetary policy start to actually have an effect on the economy. 12 to 18 months is about that window. They started hiking rates in March of last year. So here we sit in that 12 to 18 month window. Stuff has started to break. I don't know that the regional bank thing is going to be the next headline that's going to occur again. Commercial real estate, yes, I think is another symptom, but it's a symptom of credit tightening. And I think that credit tightening is going to take a few different tones. You're looking at not enough money available to small and mid-sized

businesses to finance their growth, to invest in their business. You're looking at default rates on credit cards ticking up. You're looking at the default time or the delinquency time passing the 90-day mark, right? That's all sort of in the same bucket to me. And we're going to continue to see credit tightening. And we're going to continue to see a deterioration in consumer credit. And I think that's the next big headline. But you do have to believe that at some point, write-downs are more than likely going to happen as it relates to the value of commercial real estate where it is today versus where it was. And that's going to be something to watch. Now, I would say, OK, for those of you who put forth the cautious checklist that I just read and say, well, what could make you wrong? It's, OK, consumer hangs in longer than we think. And the Fed caves and the Fed caves in part because

it's an election year and it's going to be really hard to stimulate accelerating job losses in an election year. And that's something to keep your eyes on, too. Yeah. So there I think there's there's a couple of things that could actually turn a bear bullish. Right. And I've certainly been on the cautious side of the equation. If the consumer does hang in, it has to be supported by the labor market and the labor market so far has been decently supportive of that you can also look at something like housing that's been decently supportive of that people are still willing to buy homes there's still a decent amount of demand out there and

the entire industry is supporting employment in that sector so that could help as well and then the other thing is, you know, if you look at just what consumers are spending on, they're still willing to travel, right? These are good things. The last CPI report showed services inflation coming down. That's the big thing for me. If that comes down and continues to soften, that does make me more optimistic. Do you have an opinion on what role this movement towards AI and buying AI-related stocks has meant to the market at this moment in time? Well, okay, I'll do a real quick take because I know you did the first part of the show on this. There's a lot of enthusiasm in AI, and I think that there should be. I think it's

going to be a game changer for the industry. I think it's going to be a game changer for the economy, but over the next five to 10 years. and if you're entering stocks at these high valuations simply based on AI and expecting some kind of gratification in the next six to 12 months on those valuation levels, I think you might be disappointed. Even for the, are you talking about the mega cap stocks? You think those valuations, Joe suggested their growth at a reasonable price. You don't think they are? Some of them may be. But the point is, let's say at the end of this year, you bought something at a valuation. I'm just going to use an arbitrary number. Let's say you bought something at 30 times P.E., right? By the end of this year, are you going to feel like 30 times P.E. was a good

entry point? I don't know. I'm guessing not. In five years, will you feel like this was a good entry point? Probably. But it's a matter of can. In five years, will you feel like this was a good entry point? Probably. But it's a matter of can you stomach all of the ebbs and flows that are going to happen in the meantime? The enthusiasm around it as an idea and as an innovation, I think, is rightly placed. But not every company is going to get it right. So it's not easy to buy it broadly as a theme today. You have to be choosy and then hope that you chose a company that does it well. All right, Liz, thank you. Liz Young with SoFi joining us here at Post 9. Up next, bracing for a big breakout. Top technician Mark Newton says yesterday's move higher could be a

broader bullish signal for the overall market. He'll join me here at Post 9 to make his case. We'll be right back. Stock's a bit of a mixed picture. The S&P, though, still holding on the higher end of the range we've seen over the last month. Our next guest says yesterday's breakout could serve as the next catalyst for stocks to push even higher. Joining me now at Post 9's Fundstrat's Mark Newton, the technician there. It's good to see you. Welcome back. Thank you, Scott. So I teased this earlier today as sort of one area of the market you think might be poised for a rally. And that let's do that first because it's crude oil, right?

Yeah, we've seen some recent evidence of stabilization in crude just in the last couple days. And, you know, everybody thought this was a demand problem, but we're finding it's more supply. But technically, crude broke a one-month downtrend. For me, there's a lot of pessimists. Everybody thinks crude has to continue to go lower. So my thinking is we are ripe for a time when that can start to rally. So crude rallies and then energy stocks rally in tandem? Yeah, a lot of these have gotten down to pretty important support levels.

OIH, XLE, the main energy ETFs. So those are at important levels. I think we're set for at least a bounce in those. We've seen a lot of deterioration in the month of April. I think that crude gets up to the high 70s. That's going to support an energy rally. OK, so speaking of levels that we need to watch, the Nasdaq 100. So we start the show with AI and everything sort of revolves around AI. And the move in these stocks has led to a pretty good move in the Nasdaq 100. Toppy? Well, certainly overbought. You haven't seen any evidence of Toppy. It's literally

gone straight higher over the last few months. Very constructive, but it's also served to lift optimism in a lot of these high growth tech group stocks for a lot of the right reasons, being AI and they're more thought of being safe stocks that people can use to weather any sort of downturn. So I love the group. I think it's probably a bit extended. I wrote in my note yesterday, I think we're close to a time when we probably stall out in large cap tech and we really need to see that rotation into other groups being financials, healthcare, industrials, discretionary to really help to buoy this market. There's no, I mean, there's really no time limit on how long something can remain, quote unquote, overbought either, right?

100% correct. That's why it's, for me, it's dangerous to say that the group is topping. We really have seen no evidence of that. Still a lot of enthusiasm. I still like a lot of these stocks, but many of them are pressing up against very important levels. Apple, for example, right up near 176 is going to prove to be important. So, you know, NVIDIA, Microsoft, Alphabet, all these names have really showed tremendous strength and have really helped to, you know, help this market along when other sectors haven't worked so well. Oh, well, I suggested earlier in the program that, you know, if you're bullish in the market, you better, you know, send everything you got. Send all the Christmas cards and the holiday cards to these stocks because they've, in essence, saved this market at a time when it was rather fragile, don't you think? I don't disagree that

the downturn in February caused a lot of technical damage in sectors like financials, industrials that are now starting to show evidence of stabilizing and clawing back. So it's really important for the market that these come back. But, you know, three things happened earlier in the week that gave me a little conviction on the market rallying before the Fed speak. One was that technology started to snap back very sharply. Consumer discretionary has broken out versus staples. And we started to see a real rolling over in a lot of the defensive sectors, utilities, staples. That's normally a very promising sign for the market. So you say there stands a chance that these other lagging sectors, be it financials, health care, discretionary has had a good year, too, in its own right, that they can pick up some of the slack.

Do you think it's going to happen? And if it does, why would it? Well, they certainly have with regards to discretionary. I mean, look at the home building sector. It's set to make the highest close this week in over 16 months, ITB, XHB. So companies like D.H. Horton breaking out the new all-time high territory, very impressive. Homes remain resilient, and that's something where people do not want to sell their existing homes at 3% mortgages to move elsewhere. And that's obviously an area that very well could support the supply shortage and reasons why the consumer could remain resilient. But I mean, discretionary, I think off the top of my head is like the third

best sector of the year behind tech, comm services. And I think it's discretionary. But financials and health care have have lagged. And those are the ones I really want to know why you think that those would have some sort of picking up the slack at this particular moment. Financials is more of a technical call. A lot of the sector had gotten very washed out sentiment-wise and right down near former lows. So I made a call last week about KRE, regional banks starting to bottom out. I think that has legs given that we moved yesterday to the highest level, the biggest move in over two years. Healthcare has a very positive seasonal tailwind right now heading into, you know, May, June, July, the best time of the year

for health care. So, yes, it is a defensive trade, but medical devices are showing very good strength. Biotech is on the comeback. I like the group. I think some of it is defensive, which could be good for people that are looking for that kind of thing. All right. Good stuff. Good to chat with you as always. Thanks, Scott. That's Mark Newton, Fundstrat. Up next, we are tracking the biggest movers as we head into the close today. Christina Partsenevelos is back with that. Christina. Grand Theft Auto 6 might be in the works. Rumor or not, Take-Two Interactive anticipates a surge in gaming demand.

I'll have all the details and more after this short break. Less than 20 to go before the closing bell. Christina Partsenevelos is back with us with the stock she's watching. Yeah, and Palantir makes that list. They made strong gains today after a vote of confidence from investor Kathy Wood. Wood adding about $13 million worth of Palantir shares to her signature ARK Innovation ETF. This comes after Palantir actually beat earnings expectations just in last week's report. And its CEO said he expects profitability every quarter through the end of this year. And that's why shares are up almost 15 percent at the moment.

Let's talk about another mover, shares of Take-Two Interactive. It actually hit a new 52-week high today after a surge following the company's earnings announcement just yesterday. The video game maker beat revenue estimates. And while guidance for bookings fell short, the company said, and that was the tease, that some future big-name game releases should improve sales. That's why Take-Two up 12 percent. Scott. All right, Christina, thank you. Christina Partsenevelos. Last chance to weigh in on our Twitter question. We asked which AI related stock has the most upside from here. NVIDIA, that's a double this year. So is Meta. But what about Alphabet, Microsoft? Head to at CNBC Closing Bell on Twitter. The results right after this break.

All right, let's get the results of our Twitter question. We want to know which AI-related stock has the most upside from here, NVIDIA, Alphabet, Microsoft, or Meta. NVIDIA wins the vote. Wow, 40%. That is interesting, which means I need to discuss with Santoli coming up. As we'll do as part of the market zone. Also, Netflix shares are surging despite worries surrounding the writer's strike.

We'll tell you what's driving that leg higher. We're right back. All right, we're now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Julie Fox of UBS on how to play tech. That sector hitting 52-week highs yet again today. Alex Sherman on how Netflix's ad strategy is paying off big time. Wait till you see that stock move we show you.

And Seema Modi with a closer look at the world of corporate spinoffs. Mr. Santoli, though, I begin with you. All of a sudden, we have a lot of green on the board. A little bit of a burst. We made a run at 4,200 in the S&P earlier, came short. Right now, this should be a closing high for the year at this point, above 4,180. And it's basically an intraday high, too. Yep, it's gotten there with a very kind of uneven leadership profile.

We've been talking about that for a while. But I have to say, normally, my orientation is, look, the market doesn't work when you just buy the five most obvious stocks, and it's as simple as that. But there is a little more than that going on, which is the rest of the market kind of not quite breaking down and getting a little bit oversold. And this is the way the market has protected itself from this growth scare in the economy. Now, yields are up. The NASDAQ 100 is certainly getting a little bit stretched in the short term. But I don't think you have to resort to anything extraordinary to explain it, because what we did is the Nasdaq 100 went from a peak of 30 times forward earnings

in late 2021 down to 20. It's rebuilt to 25. So if you want to say, oh, this is bubbly, this is some new AI kind of manufactured storyline, that might be the narrative thread that's working right now. But it's really just earnings estimates stabilized, people are taking shelter in the growth names. And crucially, the rest of the market, at least in the last couple of days, is sort of being carried along. You have regional banks up a little bit today and small caps at least marginally green. Which is a perfect segue to you, Julie, on how to play tech even after a run that sees the Nasdaq up 3% week to date. The Nasdaq 100 has been up for four days in a row. What do I do now?

Yeah, I mean, coming into this year, we felt that tech stocks were overvalued. We still think that way. And obviously, even more so because tech has had that huge run this year. But remember, this is also a sector that really struggled last year. The tech sector is actually our least preferred sector right now, largely because of the valuations at 22 times forward earnings. So if your portfolio is too concentrated in tech, I think that may be the case for many investors. It makes sense to rebalance into more defensive sectors like consumer staples, which hasn't been as highly valued. But while we're cautious on tech, you know, we do we do still think there's still some opportunities in this sector. Why do you think valuations are so stretched relative to tech?

Now, maybe we could have said that before all of this AI stuff started happening. But now if you actually see growth road ahead for sales and earnings, doesn't that change the conversation a little bit? Well, I think technology has been getting a lot of attention lately because there's been so much growth. But I do still think there's an investing case here. And I think it's increasingly been mentioned on corporate earnings and calls. And many companies are moving into this space, whether that's directly or incorporating their technology into the existing business model. And so AI is really what we view is that high growth theme. And that's what's attractive to us.

That's really what we're calling the ABCs of technology, artificial intelligence, but also big data, cybersecurity. And those are the three areas of tech that we do think have that long-term staying power. They should see that fast adoption over the coming years from businesses and also from government. So, again, while it's our least favorite tech sector really due to those valuations, we're not saying, you know, get out completely and take your tech exposure to zero. But for those who have that long term view, I think that's where you can really find some opportunity right now in those ABCs of technology. I didn't mean to cut you off. My audio dropped out for a minute and I thought we had lost

you. My apologies, Julie. We'll see you soon. Thank you, Alex Sherman. Take a look at that Netflix move. Better than nine 9%. What's going on? You know, it wasn't obvious to me that Netflix would jump 9% after last night they unveiled their first ever upfront presentation. Because remember, Netflix has never had an advertising product before. Now they do have an ad-supported tier. And so they trotted out their executives to sort of explain the future of the business. And I think investors really like the narrative behind the service. Over and over again, they kept stressing this is a forever business. And it's early days, but they announced several different things that I think investors liked. The idea that advertisers can now buy ads against Netflix's top 10 list. That is new. That allows advertisers to become part of the cultural conversation.

You can think about advertising against Stranger Things or Squid Game or Bridgerton or The Frown, whatever it may be. And I think Netflix's ad business was thought to be originally a defensive business for everyone in the coming months and years who were going to lop off from a password sharing crackdown, who hadn't been paying at all. Now they can buy this cheaper 699 service. Now investors may be looking at it as more of an offensive plane, like I said, a forever business, which is going to generate meaningful revenue and profit for the company. Not talking about the writer's strike for a change as it relates to Netflix. That's been part of the story this week. No question. And I mean, you know, I think Netflix is sort of the prime enemy when it comes to the writer's strike because they kind of ushered in this new business of streaming first and not paying writers enough, you know, given the amount of work that they have to put into it.

But Netflix has a lot of shows already kind of in the can so they can survive for a little while if the content isn't coming in. And they've also branched out into different areas like sports, which was heavily touted yesterday during their upfront. Think about the Drive to Survive series and the documentary series they've done recently in tennis and golf. Netflix still isn't really in the live sports business, but certainly they could get into that eventually. So I think that's yet another potential avenue of revenue growth for the company. All right, Alex, thank you. That's Alex Sherman. Seema Modi now looking at the world of corporate spins. What do you see? Well, it's certainly becoming a big trend, Scott. Just this morning, Alibaba is saying

it's pushing forward with its $12 billion cloud spinoff. CEO Daniel Zhang saying it's really part of his plan to simplify the structure of the business. He also thinks it'll be easier for it to raise external financing as a standalone company. And it sort of adds to what Goldman Sachs' global head of M&A, David Dubner, told us that along with just this yearn to simplify the business, the drop in private equity deals, Scott, because of tighter lending conditions, that's pushing more companies to raise capital by spinning off a specific business. And here's where it gets interesting. We have data from Morgan Stanley that shows spinoffs tend to outperform not only the S&P 500, but their parent company as well, two years after the listing. So this idea that bigger is better, that still may be the case for certain

sectors, but for the industrials and healthcare, where we saw aggressive M&A for years, that's starting to change and they're starting to slim down a little bit. All right, Seema, thank you. Seema Modi looking at the corporate spinoffs as we look at a market that's adding. Dow Jones Industrial Average now good for 120 points. Mike Santoli, the three best sectors of the day today are the three best sectors of the year to date. Yes. Com services, technology and consumer discretionary, despite some, I don't know, fair to say lumpy retail reports lately. That is true. Now, consumer discretionary, again, it's spotty in there. I mean, remember, Tesla, Amazon have huge roles in discretionary, but also the home builders and anything service and travel related has worked.

And, yeah, we're getting jammed higher here. I keep in mind it's a monthly expiration. You kind of do have sometimes these culminating moves. There's some choppiness the week after. But I think the market has kind of, you know, answered the question of whether it can hold itself together as we get through this period where yields have inched up. Maybe that's going to be a test at some point. We're starting to rewrite the Fed narrative to not be necessarily as dovish. And while I know everyone wants to jump on the idea that it's kind of this frothy AI-driven move,

I don't want to deny that some of the talk has gotten overheated, but I don't need that as an explanation for why, you know, Microsoft, Alphabet, Meta, even NVIDIA have essentially just rebuilt toward the valuations that they had a year before chat GPT was unveiled publicly. So my point is the estimates have sort of bottomed at this point. They're all looking richer again. They're all above their pre-pandemic valuations. NVIDIA is basically at a peak valuation. That's the one you want to point to to say things are getting out of hand. The rest of them are kind of just acting as havens and growers in a scarce growth market. And so that's, you know, I think where we stand. And again, the big question is, are people going to feel forced to participate more? You have people generally underexposed to this market. Everybody is cautious. Nobody thought tech could lead.

The question is, what's the behavioral reaction to that? Got some other tech names that are having a good day. I think we should point out Intel and Salesforce, some of the semis, as you suggested. Also, 3M, Honeywell, Nike, Amex, Disney, all among the leaders today on the Dow up better than 1% apiece. Is the Dow's good for 128 as we get a little bit closer to the end game here? Yeah. So, you know, it's an indexy move. So I don't want to say that it's somehow everyone's discovering that there's a refreshed fundamental case for all those stocks. does it does tell you that sometimes you know the market cap construction of the S&P 500 works to its favor right here again you're going to watch yields you have the

VIX back down below 17 because you have really good dispersion in the market and the market's been rotating as opposed to pulling back this is what everyone thinks is the top end of the range for the S&P everybody so we'll see if that has to get challenged. All right. That's a foul. We're going to go out. Let's call it the high. S&P 500.

Wow. All right. We'll take that. We're right at 4,200. You've got to watch that closely.