Closing Bell - Closing Bell: Apple’s WWDC & Skydance, Paramount Deal 6/11/24

Episode Date: June 11, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from San Francisco today. This make or break hour begins with Apple's all-time high. It's AI rollout, cheered by investors and many analysts as well today. In fact, we're going to hear from Morgan Stanley's Eric Woodring in just a moment. We get his first reaction to WWDC and where he thinks shares can go from here now. In the meantime, take a look at the scorecard with 60 minutes to go in regulation because we do have a developing story there as well. New closing highs at this moment for the S&P 500 and the Nasdaq. All of this about 24 hours ahead of that Fed decision.

Tech is the only green sector today. The Nasdaq powering yet again. As I just said, we're watching the Nasdaq 100, watching Apple and all the other big names, too. And of course, we're watching yields ahead of the Fed and the CPI report that is released tomorrow morning as well. And that's going to be critical. It does take us to our talk of the tape, the road ahead for the markets and Apple's newfound momentum. Let's welcome in Eric Woodring. He is Morgan Stanley's equity research director, covers tech hardware. As you know, it's good to see you. Good to see you, Scott. I got the notes right in front of me here from you. You say that WWDC delivered slightly ahead of our expectations. So what were your expectations and why were they exceeded only slightly? Why do you feel the need to use that word? Sure, because coming in, I think we probably had higher

expectations than the average investor. We did expect Apple to limit some of their new Apple intelligence feature to higher-end devices. We did think that they would come out with native first-party app integration. And we did think that they were going to partner with OpenAI, at least initially. And I would check all three of those boxes right now. Why I say slightly ahead is because Apple, for example, gave the tools for developers today, effectively, to integrate app intent APIs into their applications in order to build those out and have more command control of third-party applications. That was probably earlier than we would have expected Apple to give developer those tools. I also think they left open the possibility of partnering with other

large foundation model providers beyond OpenAI, again, to deliver a better experience for the Apple user. So again, we had high expectations coming in. We think that they slightly exceeded those. You think it will lead to that big upgrade cycle because at the end of the day, all roads are going to lead to that? Correct. This is what's most important from the developer conferences. We estimate that roughly 5% of the iPhone installed base today has a device with an A17 Pro chip.

We estimate that about 24% of the iPad installed base today has a device with an M-series chip. So you add those together, roughly 8% of the iPhone and iPad install base today is capable of running Apple intelligence features. That means 1.5 billion devices are not capable. And we think that some of the features that Apple came out with are compelling. If we put 1.5 billion devices in context, that's about five times the amount of products, devices that Apple will sell this year in fiscal year 24. So to me, we're not necessarily just looking at a year of growth in fiscal year 25. We're looking at the potential for a multi-year device upgrade cycle with the one caveat, and again, maybe the additional more important

details for me being further language rollout, right? It's only available for English-speaking language today. Further rollout becomes more important. North America is about 30% of the iPhone installed base. And then the third-party app integration, I think both of those become important details to kind of accelerate that narrative behind the force upgrade cycle. Your price target remains $216. Curious about that. Your bull case valuation is $270. Does that number remain unchanged or has that changed since WWDC? And if not, why are both of those numbers stagnant where they are here? Yeah, because we take what happens at WWDC, and that gives us the ability to kind of rethink about our estimates and take a more thoughtful approach as opposed to just saying overnight, oh, well, this might happen quickly. And so we

want to take a more thoughtful approach to thinking about, for example, iPhone replacement cycles. We believe they're five years this year. Our current forecast, 227 million unit shipments in fiscal 25, assumes replacement cycles contract from five years to 4.8 years. That's a relatively modest contraction. For fiscal 26, we have 238 million shipments, implying replacement cycles, again, around 4.8 years. If we go back to the iPhone 12 and the 5G upgrade cycle, iPhone replacement cycles contracted by about six-tenths of a year, 0.6 years. We're assuming 0.2 years. If we assume that this upgrade cycle has the same intensity as the 5G upgrade cycle, that gets you to about 250, 255 million iPhone units. That is in our bull case today.

So we wanted to take a bit more of a thoughtful approach. Also, again, it's very early days. We want to make sure that we can talk to consumers and see, do you care about these features? That becomes a very important feature. We don't just want to give them the benefit of the doubt. We want to think maybe more holistically, take a deeper dive in understanding what the real potential upgrade cycle could look like. Apple better hopes, Apple certainly hopes that consumers are going to care about these features as a whole story. What was the most significant thing that you didn't get? So I think there's two questions. One is the commercialization kind of partnership agreement

with OpenAI. You know, how exactly does that work? Is that a cost center? Is that a profit center for Apple? Again, I think Apple probably has the most valuable consumer distribution platform on the face of this earth. I'd imagine that OpenAI finds that very attractive in driving adoption of their technology. So to me, it almost certainly becomes a profit center for Apple. Again, Apple rarely will sign a partnership where it is purely a cost for them. But understanding that agreement becomes important, especially in the context of Apple has something similar, but tangential with Google, right, with traffic acquisition costs. That's a $20 billion business

of effectively pure profits. Could an open AI relationship get to that size over time? That's an important question we need to understand. The other one is just maybe the impact that these new features have on iPhone battery life. We might not find that out until the iPhone 16, almost certainly won't. But does it become a headwind to battery life such that maybe the device becomes less attractive because you need to charge it more often? Again, I'm spitballing, but those are probably the two most significant things that perhaps we didn't get with the longer term kind of third question mark being, is there a way that Apple can monetize AI in their services business? For example, a potential monthly subscription. Forgive me, Eric.

I'm sorry for stepping on your toes there. No, don't worry. What away from AI impressed you most, right? There were a whole bunch of other things, as Apple typically does. And it's like, okay, now we're going to get to the big thing as we get down the road of the presentations. Was there a standout there? I wouldn't say that there was a standout. There were maybe eight different things that we highlighted in our report. For example, I thought the calculator app for the iPad was pretty ingenious, pretty amazing. It makes me jealous of also gives you additional functionality to use your iPhone on your Mac. I even thought little details, for example, with Vision OS.

Today, there's now 2,000 native applications on Vision OS. Back at the launch earlier this year, there were only 600. So we've seen a tripling of the VisionOS applications in just a few short months. There's still a ways to go. Obviously, there's 1.5 million compatible iPad apps available on VisionOS. But just to put it in context, there's a long ways to go for more apps on VisionOS. But those are just three of, again, eight that we called out that I thought were impressive and completely not related to Gen AI.

We missed you in Cupertino. Hopefully we'll see you there next time. It was a quick trip out. Yeah. All right, Eric, we'll see you. Be well. That's Eric Woodring, Morgan Stanley joining us. Well, we could get those record closes for the S&P and the Nasdaq today, as I said. Liz Young-Thomas is SoFi's head of investment strategy joining us. Congrats again, Liz. Thank you. All right. Closing highs here. Heading into a Fed meeting, a CPI report, and everything else. How are you feeling about the market here? I mean, there's obviously optimism heading into this.

I think primarily about CPI coming in at least on expectations, if not a little bit cooler. And then we had a nice NFIB small business optimism index today. We had a pretty solid 10-year Treasury auction. So there have been encouraging signs. The data has been encouraging even just today alone. And this is after a few days of just kind of flat movement in the S&P. So not necessarily pullbacks, but just kind of a pause in that upward trend, which I think is in anticipation of all of this data.

And remember, we also get PPI this week. So it's a really big week. And listening to what Jerome Powell is going to say tomorrow, obviously, nobody's expecting a move in rates. But I think listening to his commentary on whether they're getting more confident that they are, in fact, defeating the inflation issue. It's interesting because I feel like what was expected to be an even more significant period of time for the Fed and the meeting and everything else, is maybe a little less so just because we don't expect a move tomorrow and we don't expect a move in July.

And maybe we won't get one before September at the earliest. Does that change the calculus of how you think the markets may react to whatever happens tomorrow? No matter what the Fed chair says, I guess my point is we're going to have other economic reads on inflation and just about everything else well before we think there might be a cut anyway. Right. And the way that I understand it, we obviously we know the Fed meeting started today. We get the statement tomorrow. The way that I understand it is that if there's important data that's going to be released during the meeting, they do get a heads up. So the commentary tomorrow should have that already incorporated. I think the market is going to trade more off of the data than off of the

statement unless he says something that's unexpected. I don't think that's going to happen. I think that Jerome Powell does not really like surprises, and he's certainly not going to like that in a moment like this. So I think we're going to trade much more off of CPI. And I think as the summer goes on, eyes are going to be on the labor market more than anything. We just had that first 4% unemployment print. And I think if it gets higher than 4%, markets are going to have to digest that. We have been so used to a sub 4% unemployment rate that it could get jittery as things move in that direction. Narrowness of the market matter to you at all? You know, here we are starting the show talking about Apple hitting an all time high. Tech and comm services, the only sectors today in the green. And that's much like it's been

of late. That's why the Nasdaq's been hitting these closing highs. Even the S&P 500, which has been, too, has been powered by those big tech stocks. Yeah, I mean, this is a tale as old as time in this cycle. So not something that we aren't used to already. I think that the risk appetite and the stocks that are leading the market and the fact that the AI theme continues to drive so much enthusiasm shows us that buying appetite is still strong. The optimism about the economy is still strong and that the optimism about us being able to continue elongating this business cycle is still strong. So the market being narrowly led is always a concern because you get fragile from

those points. You're hanging on to just a handful of stocks and hoping that they don't go wrong. But at this point, I don't think that there's anything standing in the way of even a little further upside, especially on a cool CPI print tomorrow. What else would you buy if you're looking to move away from tech? And look, let's play it both ways, OK? Let's assume that CPI comes in favorable tomorrow and nothing out of the ordinary happens at the Fed meeting. Remember, last go around, the market seemed to be overly consumed that Powell, the Fed chair, was going to be more hawkish than expected. He turned out not to be. It's largely the reason we were able to rally off of those April lows and get to that point

where we're talking about new closing highs every day. Right. So what I think could be very possible through summer is that, let's say we get a nothing burger tomorrow. CPI continues to cool. Economic data continues to cool. The market has cheered cooler economic data because it usually means cuts are coming. So I think we're likely to see a September cut, the probability of a September cut increase as summer goes on. But then you have to ask yourself, what might happen to the yield curve as economic data cools? So as the data cools, I think we'll see what's called a bull flattener, which is where twos and tens both fall in yields, but tens fall faster. And in that environment, including an environment that I think happens after that, which is a bull steepener, in that environment, you want short

duration equities. You want things like staples, utilities, health care, and you also want energy. Typically, the dollar is weakening in that environment, which is a tailwind for energy. And I think energy is very attractively priced here, comparable to all of the other sectors that we're talking about on a daily basis. The yield question is an interesting one, isn't it? You know, we we have had this correlation, lower yields, higher stocks. In some respects, we're getting that. But we're not having that lead to this big broadening of the market and sort of a feel better market. As we said, it's being powered by these bigger names yields down today. OK, I get the S&P is on track for a closing high.

But there have been times over the last 10 days where falling yields have not been a good stimulus for stocks. In fact, they've fallen because the assumption was, well, if yields are falling, maybe the economy is falling too. And therefore, that's not reason to be overly optimistic at this moment about stocks. What do you think about that? I think that's what we're going to deal with through summer, where we have this cooling in the economy that everybody has sort of begged for. And then it seems like stocks have begged for. And then what if we get to a point where it's too cool? And I'm not quite sure where that inflection point is yet. I do think, though, in the near term, if yields fall, both on the short end and the long end, stocks will celebrate it, particularly in those mega cap tech names. This to me,

because we haven't had that broadening out, this to, is more reinforcement of the belief that we are late cycle. We are approaching Fed cuts. We have large cap dominance again. We have an unemployment rate that was really low but is now on the rise. We have a labor market that is cooling. We have GDP growth that was really, really strong, still positive, but is coming down and is slightly expected to be below trend for the rest of the year. This is all late cycle behavior. The only thing that I think people are hanging hats on from early to mid cycle is that AI is going to somehow change the business cycle entirely. And I just don't think that's the case. So I do think we will go through a part of the cycle here in summer and early fall as we approach that first cut,

where markets get a little bit jittery about, you know, we wanted things to cool, but how cool is too cool? And we'll probably see some bumps as that happens. There are some who would say, well, hasn't AI already changed the business cycle? I mean, just through the spending that we've seen to this point, isn't this literally happening as we speak? I think it has changed some of the reaction in the market. It's changed the market's reaction function, and it's certainly changed where I think consumer sentiment and investor sentiment would be if this didn't exist. So yes, I agree with that. I think we're still at a point in that theme and the evolution of that theme where we need to figure out where

the profit comes from. How do we monetize this? How do companies grow profit margins with AI into the future? Because as we know, this is a theme that we would expect to really transform industries for years to come still. And we're in the early phases of it. I think we're in the infancy of it. So as it moves and evolves, we have to find out where the profitability centers can be and who the actual winners are.

I think those are still bigger question marks than some investments are showing in their PEs. Interesting. You know, because I'm looking at those AI plays, whether it's Broadcom higher today. We know what NVIDIA has been doing of late, Microsoft and Meta. And, of course, Apple with its latest salvo in this whole thing is at a new all-time high today. Liz, we'll leave it there. Liz Young-Thomas, we'll talk to you soon. Thank you.

Thank you. Let's send it over to Christina Partzenovilis now for a look at the biggest names moving into the close. What do you see? Thanks, Scott. Well, let's talk about another stock buyback program, this time to the tune of $6 billion of General Motors. Separately, at a Deutsche Bank conference today, the CFO cutting back its EV production goal, betting that customers will instead buy gas-powered models. The buyback raising shares almost 2%. Speaking of forecasts, NextEra energy shares are about 6.5% lower after the energy company

guided its 2027 adjusted earnings per share, lower than what the street was anticipating. At their investor day, management blamed higher rates and a slowdown in renewable and storage replacements for that weaker guidance. These last few years were pretty strong, so the benchmark is high, according to management, and that's why shares are down 6%. First Solar shares, though, trading at levels not seen since 2008. Yes, shares are up almost 4.5% on a price target increase. From Baird Analysts, they're betting the stock can go to $344. They argue that First Solar has a strong backlog, a manufacturing advantage,

and could be seen as a power alternative for companies building out AI data centers. So it has an AI connection. That's why shares are up over 4%. Scott? All right. We should have figured. Christina, thanks. We'll see you in a little bit. Christina Partsenevalos just getting started here at One Market in San Francisco.

Up next, top wealth advisor Cheryl Young is back with us breaking out her market playbook. Christina, thanks. We'll see you in a little bit. Christina Partsenevalos, just getting started here at One Market in San Francisco. Up next, top wealth advisor Cheryl Young is back with us, breaking out her market playbook. We'll find out the sector she is betting on right now and where she's seeing big opportunity amid the AI arms race. On set here at One Market. The S&P and Nasdaq both trying for record closes today. Joining us now is top-ranked wealth advisor Cheryl Young of the Rockefeller Global Family Office. Based out here, it's nice to see you in person out in your neighborhood. So let's talk about this tech run, okay, because you're 44% weighted to tech. So you've got a lot at stake here. The big techs are obviously among your largest holdings. How do you feel about this trade? Well, good today, Scott. You got more than today for a reason to feel good, right?

For the last few years. And I guess the thing of the week will be is AI for the rest of us for real. I mean, you have now the latest entrant, I guess, into the arms race. So now everybody's got a stake. And are you thinking about, you know, you have broad exposure. I know you have a lot of these names and you can't mention which ones specifically, but you are all over the AI trade. You feel there are going to be more than one winner here? I do. Look, if you look at the S&P this year, 57% of it, almost 58% of it a year today comes from the MAG-7, right? And so when we think about the AI trade, everyone's focusing on these mega cap names, but you have to have data centers. You have to cool the data centers. You have to wire

the data centers. So there's a lot more that goes into this AI trade. And if the AI theme is real and we expect it to go from somewhere around a 5 percent adoption to about 25 percent adoption over the next 12 months. So I think there is a lot of momentum. But so much of these mega cap names have already had that priced in. OK. And I think there's potentially other opportunities outside of those names. See, I'm glad you bring that up on the idea of what's priced in. There's momentum. There's enthusiasm. Some might suggest there's too much euphoria around these trades.

I asked Brad Gerstner of Altimeter earlier on halftime about the tech trade itself, the fact that some of these names, like in NVIDIA, for example, have run so far. And some may suggest that it's too fast. I want you to listen to what he said. We can react on the other side. The smart money today I think that what we hear people calling us is buying software. If I just look at the number of the calls that we're getting, if I look at our own behavior, I think we're probably getting close to the bottom in software. We expect it to inflect higher in terms of growth rates as we get toward the end of this year and into the beginning of next year.

Remember, we're trading 20% below the 10-year average multiple for software if you look at it as a multiple of either free cash flow or revenue. And so I think this is a good time to go hunting in software. We all know we've come a long way fast, Scott. I'm not telling people at home to shove it all on the table and go all in today. Our net exposures are 60%. What does that mean? Again, reminder for folks at home. That means I have six out of $10 at risk long the market in our hedge fund.

I'm not all in. I'm not 100% net long. All right. We wanted to talk about software a little early. The second soundbite is the one I want you to react to. The idea that we've come a long way fast. I'm not telling people to shove it all on the table and go all in. His exposure is not 100 percent. No, I agree. And look, if we look at the last time we had a major one of these mega cap stocks split and again, I can't mention individual names on here,

but one of the biggest ones rallied 8% into the split, sold off 65% peak to trough after the split. The second largest one rallied 39% to the split and sold off 20% peak to trough after the split. So I would not be shocked to see a pullback when we have any time there's a stock who splits. People have to remember four times seven equals seven times four. It doesn't change the fundamentals of the stock whatsoever. Sure, but I guess the bullish argument is really only centered on the fact that it opens up shares to a potentially new or expanding class of investors. Yeah, but does it? Because there's so many ways of buying fractional shares. I know you can do that too, but certainly 120 looks better than 1200 to some people, for example, when you look at a certain high-flying chip name. Well, and of course, I have to look at the math and I have to look at the psychology.

I think that long-term post-split stocks tend to do very, very well. So I would be a buyer in adding more after a split of any major stock that I like, you know, again, without talking about individual names, but on a dip potentially over the next few weeks. I'd be a little bit nervous at these prices. What about what Brad said about software? A lot of these names haven't traded very well. We asked the question of whether software is dead, you know, non-AI specific related software. And to what his point was, I think we're getting close to a bottom. I would agree. I picked up a few names last week in this space. There were a couple of companies that just got really hammered after their earnings

that I think are great quality plays. And again, if the AI play is real, really good companies that will actually benefit by AI adoption. I think the limit is really now is how much does AI move margins at these companies? And in some instances, we can see a lot of margin compression. We can see a lot of margin expansion. In other areas, it's just really questioning as to how much AI plays into the company's profit margins. We said earlier the S&P is on track for a new closing high. Do you sit back and look at the market as you try and navigate it yourself and say this is an unbelievable run in the face of a lot of uncertainty? Does it seem completely justified? The multiple of the market makes sense relative

to where rates are and where you think earnings are going to be? Well, you first of all have to remember where we came from. I mean, 2022 was a pretty traumatic year in terms of the downside of the market. So we're coming off of these lows. So, of course, we've had this massive movement up. But at a P-E ratio of 21 approaching 22, no one can argue that the S&P is not overextended in terms of pricing. It has 100 percent of the time sold off when it's at these multiples in past episodes. And so I would not be shocked to see some profit taking again because of the pricing. And we really have to, again, see the profits. When you look at the price per earnings,

you have to see those earnings continue to expand. And seeing that the global economy is starting to slow a little bit, the question mark is next quarter, will we continue to see enough growth to demand these kinds of prices? You sound skeptical. I am skeptical. And I've talked about this on past episodes. I'm a marathon runner. I'm a rock climber. I think a lot about steps to take to get to the finish line. In the 28 marathons I've run, I've had some that have blown up, literally in some cases, because I was at the Boston 2013 marathon, which we won't go there. But I think about how to really stage my race. And what you don't want to do is go out too fast.

It's the biggest mistake runners do when they run a marathon is they go out way too fast. And so when we see these stocks, and again, you can't look at this market and say the markets are up because really it's just a handful of names that are up. It's not broad participation. And this type of thin participation, I can't even say that word, participation, makes us very nervous in terms of how long it can really last. There are other quality names out there, like some of the software names, some of the cybersecurity names. What about outside of tech?

Outside of tech, I really like energy. Energy has gotten just pummeled the last three weeks. And I think in terms of valuation, and Liz Young just spoke about this with you just a few minutes ago, I think in terms of valuation, it's probably my favorite sector out there right now. Oh, wow. Energy is. Mm-hmm.

And again, I would go back to the AI play. If you like AI, you have to like energy. Well, people say you have to like utilities if you like the AI play. But they're already up over 12 percent year to date. I mean, but they're down over a longer period of time still, which is why the recent run could be a little bit deceiving when you look at what the valuations really are over a much longer period of time. Agreed.

Where it gets interesting and dicey on the utilities is the debt picture. At these types of interest rates, it's very expensive for these companies to run because they tend to be very debt-driven. 28 marathons, is that what you said? 28, I know. You're making us all look bad.

Cheryl, it's good to see you here. Nice to visit with you in your town. Cheryl Young of the Rockefeller Global Family Office joining us here at One Market. Up next, the countdown to test the shareholder meeting is on. The vote on Elon Musk's $56 billion pay package is hanging in the balance. We discuss what to expect from that meeting on Thursday and what is at stake for shareholders. We'll do it after the break. Welcome back. Tesla's annual shareholder meeting just two days away now. The key vote at that meeting will be whether to restore Elon Musk's $56 billion all stock pay package. Earlier on Halftime Report, we did have a spirited debate

about that vote with Tesla shareholder Brad Gerstner of Altimeter Capital. Scott, I've been very clear about this publicly. I think the fact that we're even having a vote is outlandish, right? I think this judge's decision here is a threat to free enterprise. I think it's a threat to capitalism. I think it's ridiculous. Tesla shareholders want Elon to get paid for the incredible work that he's done at Tesla. And to have, you know, Monday morning quarterback this stuff, to use courts rather than shareholders in order to undo a pay package, I think is ridiculous. We voted in favor of the pay package clearly. If you don't like the pay package, Brad's right, sell the stock. But you know, I just

think there's an issue for every CEO. I don't think it's anti-American. There's a rule of law. I've been in front of that very judge that turned away his pay package on another matter in the Delaware courts. And it's not political. It's not she doesn't want to see people make money. It was the rule of law. She didn't say you could never do it. She just said do it the right way. So it's not disgraceful. That's what America is about. The day we stop paying CEOs in this country who create trillions of dollars in value for a pay package that was agreed on at that point in time, right? It's a bad day for America. We are the most competitive country in the world because we honor these things. And so we're just going to have to

disagree on that and move on. So Gerstner added to the list of those shareholders voting for the pay package, while other high profile shareholders like CalSTRS and CalPERS have said they'll vote against it. It's such a hotly debated topic that Tryon Capital's Nelson Pelts, who is not a shareholder in Tesla, he is a friend of Elon Musk, though. He reached out to me with this statement and said the following, quote, Elon Musk is a true visionary and exemplifies capitalism at its best. In 2018, 73 percent of Tesla's disinterested shareholders approved a 100 percent risk based compensation package for Elon that is wholly tied to company performance and long term shareholder value creation. No base salary, no annual bonus and no time based equity grants. That is exactly

what investors in any company should want. To renege on this plan now defies logic, and I believe, said Mr. Peltz, would be a grave mistake. Let's bring in Phil LeBeau now, who, of course, covers Tesla. He'll be watching that meeting very closely. I'm wondering what you make of the back-and-forth between Mr. Gerstner and Weiss, and then the statement from Mr. Peltz. I agree with Brad, and I agree with Nelson Peltz. Look, this was a pay package that was approved

back in 2018. And I remember reporting on it, Scott, and I remember how many people said, have you seen the metrics that he has to hit? And people were focused on the $56 billion that he would ultimately get. But this was not a walk in the park. These were ambitious targets that were set that he would have to hit or Tesla would have to hit in order for him to get that compensation. And if you were an investor back then, I came across no investors who said, this is stupid. This is ridiculous that he could get 56 billion. You know what most people I talked with back then said? They said, well, great. If he does, I'm probably going to cash in. And did they ever, Scott, take a look at this. If you had $10,000 invested in Tesla on the day when his pay package started, it would be worth more than $80,000 today. You tell me one investor back in 2018 who would not take that return?

It's easy to look back now and to say, I don't know, if we give them that money, it's going to dilute the shares. But back then, you bet you would have taken it. And that's why I think a lot of the retail shareholders, I don't know how they're going to vote, Scott, but Elon Musk has already said 90 percent of the people have voted. My gut says that most of those 90% who have voted are likely to say, give them the money. You can be sure, Phil, that there's the fixation on the number itself. $56 billion on the face of it is a large number. Not focused as much are the critics on the success and the roadmap, pun intended, really, of how Elon Musk has grown the company from the days of that agreement until now. 100 percent.

And he has hit the targets. Tesla has performed. And that is what investors want from their CEOs when any kind of an incentive or pay package is set out there. You hit these benchmarks, you will be compensated. Now, it's a completely separate conversation about whether or not any executive is worth $56 billion. But separate the two. This was approved by shareholders in 2018. That's why I believe many of those retail shareholders will vote yes, even though you saw the institutional shareholders who you showed earlier who are saying, no, this is going to dilute the stock and it shouldn't happen. We'll see you on Thursday.

Look forward to that. Phil LeBeau, thanks for your insight very much. All right. Up next, we're tracking the biggest movers as we head into the close. Christina's back with that. Tell us what you see now. Oh, we have continued concerns around the fundamentals of one steelmaker and some profit taking at an airline that is dragging down the entire sector. I'll have that and more next. We're just about 15 out from the closing bell. Let's get back to Christina now for a look at the stock she is watching. What do you see? Shares of steelmaker Cleveland Cliff are falling right now after another Wall Street downgrade. This time it's from JP Morgan. You can see shares down 3%. They say the stock is a hold right now because of, first, lower steel prices, and then secondly,

higher costs for operations. In other words, weakening fundamentals. Shopify shares are on pace, though, for their longest rally on record, dating back to its IPO in 2015. That's 11 straight days. You can see shares up about 1.5%. J.P. Morgan initiating coverage of shop with an overweight rating, pointing to its over 2 million online merchants in over 175 countries as a competitive advantage, as well as its product ease and use, as well as scales. But if you zoom out on the actual year, shares are still down about 13%. And last but not least, some profit-taking today with Southwest shares.

Yesterday, Southwest posted its best day in more than a year after activist investor Elliott Management announced an almost $2 billion stake in the firm, also called for a CEO change. But shares are now down about 5 percent, also dragging down other airline names like Delta. And you can see a sea of red right there. Scott. Christina Parts and Nevelas, thank you very much. Still ahead, financials are falling, both the big banks and the regionals slipping in today's session. Breakdown what's behind the sell off in that space when the bell comes right back. We have breaking news on the Paramount deal. David Faber has the latest details. David,

what can you tell us? Yeah, something of a shocker at this point, given how long and how hard everybody's been negotiating on a transaction that would involve, of course, as I've reported so many times, Scott Skydance and its partner, the private equity firm Redbird, taking control of Paramount through a complex transaction. But key as well to that transaction is also getting the control shareholder, Sherry Redstone, to agree to a deal in which she would sell that control stake. That control stake is housed in a company called National Amusements. Roughly 70 percent of the vote is there. There was an economic agreement, roughly $2 billion that would be paid to Sherry Redstone and NAI to transfer control of NAI and therefore control of Paramount to the Skydance Redbird team. I have learned, and I think other outlets have similarly, at least the journals, potentially learned as well, I couldn't quite get up here fast enough, is that even though there had been an economic agreement reached, there was an inability somehow to reach agreement on what

are being termed to me non-economic terms so that a deal could go forward. And that that has been basically presented to the special committee of Paramount's board, which is now not going to vote one way or the other. They're the special committee, of course, that is apparently looking after or is looking after the best interests of the B holders, for example, of other shareholders. But they won't have a deal to vote on if the control shareholders not going to do their deal. So I don't know the specifics of what I'm told are fairly small items. Again, non-economic in nature, Scott. It was my understanding, by the way, that through this weekend, in fact, they had reached

agreement on broadly on things dealing with legal indemnification. There will inevitably or would inevitably been lawsuits, for example, involving this. So how small these these deal points were is not completely clear. They though they do not appear to have been major deal points and again not economic in nature nonetheless enough to completely upend a transaction that again has been in the works and been negotiated tirelessly on both sides for many months this very well is the end uh conceivably of skydance's um continued negotiations to try to buy this company, whether it results now, Scott, in another potential bidder for NAI that would not involve

paying 15 bucks for half of the shares to the B holders, that would not involve, obviously, the merger of Skydance, the studio, into Paramount, whether that will still come to the fore, unclear at this point. But what does appear to be becoming clearer is that deal is not going to happen. You know, David, you've reported on this out front every step of the way. And as you know, Skydance wasn't the only potential player here, too. And you've reported on the others along this journey as well. I want your reaction to a headline I see now speaking of what the next step in all of this might very well be. The Journal says that Redstone is unlikely to try merging Paramount in another

company. I guess the suggestion being that the whole thing is done. Is that how you would take that headline? And then if so, where would that leave Paramount and National Amusements and Miss Redstone herself? Yeah, good questions. I think what they mean by that is what I would also say, which is the likelihood of Paramount itself merging with a Skydance. Or again, I reported for quite some time on the interest of Sony and its partner, Apollo, which never really seriously mounted a bid here.

That's not going to happen. So the other possibility is that she gets an equal to or perhaps higher price for her control stake in NAI, sells that, departs the scene. Although, frankly, remember, she still owns 32 million B shares and then leaves it to be somebody else's problem. Scott, what I would say when it comes to some of these other names that have been out there, the latest being Edgar Bronfman, is that they are subject to due diligence, that with the stock being down and perhaps continuing to fall, remember, this is a company right now that doesn't have one CEO. It's got a three headed trial, a triumvirate running it at this point. You know, what in the world do you really expect you're going to be able to get in terms of economic value? Somebody taking control of this company if they don't have a full plan in place, if they don't have another asset that

they feel they can merge in that will actually create value? Very much unclear to me what that would actually look like or mean. So, yeah, you can talk about other potential bidders for NAI. Again, not for doing anything with Paramount, per se. It's just remains a public company. None of it gets bought, as was the plan under the Skydance, where you'd have the opportunity to tender as much as 50 percent of your shares at 15 bucks. And then I guess this new control shareholder over time figures out a new plan. You know, we'll see if anything really comes to the fore. What would appear more likely from my perspective at this point is that Shari Redstone stays in control. NAI retains its voting stake as is. And maybe they start to make some moves

in figuring out who's going to manage this thing, you know, still to come. A lot of fingers being pointed right now. I've spent a lot of the days, you might imagine, on the phone. Any number of people want to say, well, there's a special committee director named Charles Phillips, once was president of Oracle, has decided he just would not allow a deal. He's had a lot of conversation and a lot of contact with Sherry Redstone and turned her against the potential transaction that she once seemed quite supportive of. There are others who simply say that her lawyers at Ropes and Gray and the lawyers at Latham representing Ellison were simply unable to come to some sort of agreement, again, on this minutiae that I've heard about. But ultimately, it's her decision. And Sherry Redstone apparently said,

no, even though you're willing to pay me two billion dollars, I'm not going to do it. And there's a lot of other emotional factors that you might imagine figure in here. Remember, National Amusement's been in her family for a very long period of time. This is about her children as well in terms of securing their, you know, their their estate, so to speak. I can't speak to all of it, Scott, but but it is a curious, curious conclusion at this point to what has been obviously quite a drama. Some 11th hour chaos, I guess we can call it, David. I appreciate your reporting and thanks for coming on with us and giving us the very latest. We'll see what the next chapter is in this ongoing drama. As you say, that's David Faber with the latest reporting. We'll go right into the market zone now.

CNBC senior markets commentator Mike Santoli here to break down the crucial moments of this trading day. Leslie Picker on the sell off today in the financials and Kate Rogers looking ahead to Oracle earnings out in overtime. But Mike, I'll begin with you. So a day when Apple hits an all-time high, we get CPI in the morning, a Fed decision in the afternoon. Yes, we do. And it's, again, one of those zero-sum days where Apple is a massive upside contributor, majority of stocks down. The overall market pretty placid. We have this churn, a very good treasury auction has yields down. A week ago, I was saying the market was looking for permission to celebrate lower yields in the form of a good jobs report. We got half permission. Now we're looking for the same permission when it comes to CPI showing further disinflation

and maybe just a no new news Fed press conference. I think that would probably be what the market is. You know, it's always willing to overreact to something that's not really a change in the story from the Fed. But I don't think that we should expect necessarily the Fed to go out there trying to pull the market in any one direction. We're going to see. It's going to be exciting. We'll be with Gundlach, of course, as you know, in Los Angeles at Double Line, right when the Fed chair stops his news conference tomorrow.

Leslie Picker on the sell-off in financials. What's going on? Hey, Scott. Yeah, financials, the worst performing sector of the largest S&P groups today. You've got State Street Capital One in synchrony, the biggest laggards here. We've also seen PayPal among the biggest laggards throughout the day, as well as some of the big ones. Citigroup, J.P. Morgan, Bank of America, each facing some pressure as well. A lot of this is stemming from some ongoing executive commentary over the last few days

at the Morgan Stanley Financials Conference. Several presenters, including those from Huntington, cut guidance for net interest income, spurring some declines among other financials with a tilt toward that profitability metric for loan making. And then there were some other banks who mentioned loan trends coming in a little lighter than otherwise expected, creating some concern on that front as well. So higher for longer interest rates still muddying the picture for a few financials as we await May CPI and FOMC. Scott. All right, Leslie Picker, we appreciate that. Kay Rogers looking ahead to Oracle earnings coming in overtime. And, well, we've spent a lot of today discussing the future of software.

And I'm sure this company is, you know, factors into those conversations we've had, too, about stocks that have, you know, obviously not done all that great of late. Scott, that's right. So analysts will be looking for $1.65 EPS on revenues of $14.55 billion for Oracle for Q4. The street will be watching Oracle's cloud infrastructure. JPM, with a market perform rating on the stock, said recently, quote, while investors have multiple ways to assess it, we know last quarter, rather, Gen 2 infrastructure services had annualized revenue of $6.7 billion and grew 52% year-on-year, up from $6.0 billion and 55% growth in F2Q. And CTO Larry Ellison commented on the

call, quote, we can build the data centers relatively fast, and I expect the OCI growth rate to be over 50% for a few years. Guggenheim adding in a separate note, quote, while the IT spending environment has not been favorable for some time, as reflected in recent prints for other prominent application software companies, Oracle's lowered F4Q cloud services guidance that appeared conservative at the time now appears prudent and should help. The stock is up over 18 percent year to date. Scott, back over to you. Okay, Rogers, thanks so much. All right, Mike Santola, you can take us towards the close here. And it does look like we're going to get a new closing high

for both the NASDAQ and the S&P 500. Thank you, NVIDIA, though obviously not today, but certainly big thanks to Apple hitting that new all-time high. And we shouldn't forget that, over 200 bucks for the first time. No, for sure. And what you think about this market

largely comes down to how you interpret the fact that we are able to make these S&P 500 new record highs when you have, again, the majority of stocks either not participating, the median stock down three and a half percent since the end of the first quarter, whether that shows you resilience and this sort of positive rotation, the way the market is essentially defending itself against some short term kind of macro churn, or if that shows you a little bit of eroding demand under the surface. I view it as still a bull market, a low conviction one, a low momentum one, a very selective one, and probably looking to reprice the Fed path. And maybe if September seems like it's still on the potential calendar for a cut

after tomorrow's press conference, it could be enough to energize the rest of the market. But you have more new 52-week lows today than highs, and that's been a pattern for a little while here. So, again, looking for permission to celebrate some change. All right, bells ringing. And that bell will mark a new record close for the S&P 500 and the NASDAQ yet again. That's it for us. I'll see you in L.A. tomorrow at Double Line, into OT with Morgan and John.