Closing Bell - Closing Bell: Big Bad Battle Brewing in Big Tech 5/11/23

Episode Date: May 11, 2023

Wedbush’s Dan Ives is calling Alphabet’s latest push is a defining moment in the AI race. He makes his case. Plus, Capital Wealth Planning’s Kevin Simpson breaks down where he is finding opportunity amid all of the volatility. And, Marci McGregor of Bank of America Merrill Lynch explains why she thinks defense is the best strategy in this market right now. 

Welcome to Closing Bell. I'm Scott Wagner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the AI arms race and whether Alphabet just saved the day for its investors. That stock, take a look at it. It's higher again on the back of that developer conference out in California with CEO Sundar Pichai essentially saying, not so fast, Microsoft. Here's your scorecard with 60 minutes to go in regulation. That pop in Google shares, obviously helping tech lead in an otherwise red tape. NASDAQ, the only of the major averages in the green today. Rough going elsewhere as a spike in jobless claims once again,

renewing recession fears and a steep drop in shares of PacWest, bringing those regional bank worries front and center yet again. Dow was down more than 400 points at its low. It shaved a good amount off that, still down about 230. It brings us to our talk of the tape, the big bad battle brewing in big tech and why one star analyst calls Alphabet's answer a defining moment in that fight. Let's bring him in. Dan Ives of Wedbush, he just raised his price target on shares of Microsoft. Good to see you. So you go to 340 from 325 today all because of ai

well it's because not just ai but what we're seeing with stable cloud checks the last few weeks i actually think we're seeing a tick up you know not just from march into april and may which is bullish for microsoft i think they're gaining share versus aws and it continues to really be a rocket gibraltar stock and to me, from all of our checks over the last month, I believe this AI theme is probably the most definable theme we've seen in the last, call it, 15, 17 years. Microsoft is leading this Game of Thrones arms race. And we believe this could ultimately 35 to 40 percent incrementally

add the cloud opportunity over the next few years. That's the sum of the parts why the stock, to me, continues to go higher. So you think the monetization expectations for Microsoft are that big? Yeah, I mean, Scott, I think from what we're hearing from partners, customers, for every hundred100 of cloud spend that Microsoft's had, they could potentially be looking at incrementally another $30, $35 of spend over the next few years as they monetize AI on the cloud, which is so important with what we heard from Google in terms of them obviously making sure that they are going to play a big role in terms of monetizing the cloud for GCP.

And that's essentially what's going on here. The enterprise, that's the golden goose. And right now, Nadella continues to flex the muscles in terms of Microsoft's strength on AI. I know. I feel like we're making these grand pronouncements though, and it feels all a little too early, doesn't it? In any way to you? Look, I get it, and I get some that think it's a hype theme, but I think what we're really starting to see is customers, partners are actually starting to do the math behind the potential monetization. And I think that that's the important thing is that in the near term, you're not really baking in that Microsoft's going to get too much incremental revenue in the next 12 to 18 months. But I actually think it's going to come sooner than I think Street's expecting.

I think it just speaks to the overall monetization opportunity. I mean, this is a game changer for Microsoft in terms of AI. And I just feel more and more emboldened from our checks, what we're seeing on AI and also cloud where they're actually continuing to gain share from Jassy and AWS. I know, but I'm trying to like but what could you possibly be checking on that is bearing results already on this AI thing from Microsoft beyond what we already know? Are we putting the cart? I hear you. I hear you on everything that you think, but are we putting the cart before the horse in any way?

Yeah, and I could see that narrative, but it's really when partners, customers, beta customers, and ultimately CIOs are more and more looking at what you could actually do on the cloud with chat, GPT, with AI for Azure, I think it changes the whole game. And that's why you're seeing Google, you're seeing Amazon, you're seeing others, Oracle among others, try to play catch up because this is a Game of Thrones battle that's playing out. Microsoft, it really continues to be in the lead there. And I think the monetization, if there's one headline here, the monetization is going to come a lot sooner than we expected on cloud. I wonder about this notion that you suggest of alphabet playing catch-up, so to speak,

which others have brought forth as well, and whether it's a false narrative to begin with, that Microsoft got out of the gates with their big chat GPT announcement, and it stole all the headlines, and it stole all the headlines and it stole all the hype and the whole entire narrative around AI seemed to build around that and then it was everybody else fighting for the scraps. How about that? How would you address that as to whether Alphabet is truly as behind as some people want you to believe? Well, first off, I mean, they, it was a black eye in terms of coming out of the gates with BARD, and that's well documented in terms of the launch event.

The irony is Alphabet has some of the best and probably the most AI engineers under the roof. So they actually can play catch up. They are going to be a major player. I think the problem with yesterday is that the definable strategy on how they're going to monetize on the cloud, I think that continues to sort of be the missing piece. It was a step in the right direction. You see the stock obviously reacting accordingly. But I think right now they are playing catch up. And I think it's been a surprise. It's been a black eye moment for them that Redmond basically came around and took the

lead for some time. They've basically been the leader for five to seven years. You know, you say that the problem with yesterday, I don't read too many analysts on the street who had any problem with yesterday. In fact, I see so many different glowing remarks regarding what Alphabet did. We made a wall. I'm going to show you some of these. Jeffries, of this event yesterday, one of the most substantial in years. Morgan Stanley will help erode the heavily debated AI overhang. UBS makes Google look more front-footed in generative AI. Oppenheimer quelled near term investor angst.

Atlantic equities sufficient reassurance that it remains competitive. So I don't I don't see where there was an issue with yesterday among many of your counterparts on the street. Oh, I mean, look, a step in the right direction. But it was a layup. It wasn't a three-pointer. And I think if you look what Microsoft is ultimately doing, I mean, they're actually, I think, miles ahead of any competitor, including what we see from Google. And that's why it's a step in the right direction. But they are playing catch-up.

And I think right now this is a defining six to nine months. But the top of that mountain of AI is Nadella and Redmond. You know, that continues to sort of be our view. All right. I want to bring in Mark Mahaney. Speaking of other analysts, Evercore ISI, of course, Joe Terranova is with us, too, of Virtus Investment Partners. Mahaney, it's good to have you. I want to go to you first. Do you see it the same way that Dan Ives does? I have a lot of respect for Dan. I think I have a different take on it.

I just think Google yesterday reminded people of how deeply embedded they put AI across their products and just how big their data pools are. So I don't think Google is behind. I think Google has been investing in machine learning and AI as long as or as longer than anybody else. I think there's a couple of big winners. I'm sure Microsoft is one of them. I'm pretty sure Google is one of them, too. What happened is we had a little, you know, kind of month or two where the market kind of forgot about Google and you needed their annual developer conference, nothing more, nothing less, their annual developer conference to remind people of just how well they've implemented AI throughout their products

and solutions. So I don't want to overstate yesterday. I think it was more of a reminder rather than breakthroughs. I know, but I mean, Ives just said it was a layup, not a three-pointer. Do you disagree with that characterization? Well, I don't know about the layups, three-pointers, whatever. I think they've been shooting AI baskets and doing it pretty well for a good number of years. Some of those have been three pointers. I do think that Microsoft and, you know, what's brought all this out is ChatGPT. And I think what's going to, we're all going to benefit from this because I think the search experience is going to be better. I've been testing BARD for quite some time. I think it's just as good as ChatGPT4. By the way, I don't

think ChatGPT4 is going to be able to charge 20 bucks a month going forwards as they are now, and I'm paying it, but I don't think tooGPT4 is going to be able to charge $20 a month going forwards as they are now, and I'm paying it. But I don't think too many people are going to pay that because I think you're going to get a lot of equivalence in the search results from these companies. I think we're going to have a better search experience when you talk about monetizing it. I think you're going to have more search queries going on. Guess who wins from that? Google does. And at the other side, I'll just pick a little bit with Dan.

I think you're going to see an increase in these AI workloads. Like generational AI is more computationally complex. So those basic infrastructure as a service models, that's Azure, but it's also just as much, if not more, AWS. They're going to see more volume, more instances across their platforms. You're going to see a reacceleration in cloud growth kind of across the industry. AWS will benefit from that. Azure will, too. And you'll start seeing it early on, I think, in 24. So it's another reason to get kind of more bullish on some of the stocks that I think have been kind of left behind in this AI rally. Google is one of them. Amazon's another. I'll bring Joe in in a minute. But Dan Ives, how would you respond to that? Look, Mark has always made septic points.

I think the one thing that he's talking about, which I think is important, is about what's happening on cloud with GCP, with Amazon. I think that right now, I mean, a consumer, Google is going to continue on that. I think the big arms race, the golden good, where everyone's focused on enterprise, that's where Microsoft's leading. That's where others are playing catch up. Alphabet, it was a step in the right direction. But I think actually the biggest concern is Amazon in terms of where they are in AI continues to be a wild goose hunt. So Joe Terranova sitting next to me here, who just recently rebalanced his ETF. He got back into large cap tech. And one name that was conspicuously absent on that list was Alphabet. Yeah, there was, if you would, there was a yellow light for Alphabet. There really wasn't the green

light, the go light. And it's all predicated on price momentum. I think when you look at Alphabet right now, obviously, given the appreciation we've seen the last couple of days, you could make the argument that the green light's been turned on. You wish you added that? You wish you added that? You always, when you see a stock up 5%, wish that you owned it. But no, the strategy, it's disciplined, it's rules-based, it does what it needs to do effectively. But I think when you look at these two companies fundamentally, let's understand something. The deterioration in the fundamentals for either one of these companies was never really evident, consistent with the type of selling that you saw in Q4. There's this belief out there that Alphabet probably is a little bit more exposed to the

macroeconomic weakness that we're experiencing. But the counter to that argument is that we might have already seen the trough for IT spending contracting, macroeconomic weakness. So I think ultimately, when you look at these companies as they move forward, they're both in a very, very strong position. And their arsenal is their balance sheet and their cash and their ability to make acquisitions. I would make the argument that Microsoft has been better at making acquisitions in the last several years. I also think fundamentally Microsoft has been more consistent in delivering returns to shareholders through capital allocations. Last couple of years, Alphabet finally came around once again. So the question ultimately comes down to if these two

companies get into an arms race and have to spend a lot of capital, do we see a little bit of a weakening in the desire to have the type of capital allocation strategies, in particular from Alphabet, that we've been rewarded with the last couple of years? You do realize, too, that Alphabet shares are up year to date more than Microsoft shares. I do realize that. In the context of this whole conversation that seemed to leave Alphabet sucking wind, in reality, the stock has done better than Microsoft. Now, it's obviously close. Yes.

But some would have you believe that the stock has been a dud relative to some of the others, that Alphabet was completely left in the dust because Microsoft came out with this GPT deal. Yeah, I think there's a distinction or at least a perception surrounding the managerial view. I think Microsoft's management team is looked at as maybe being a little bit more effective in a lot of their policies and a lot of their actions than Alphabet. I think that's been a case that's been evident for the last several years. And I also think, look, again, going back to what happened in Q4, it was all tax loss harvesting. I mean, that was very obvious. It was mutual funds. It was hedge funds. It was a lot of rules based strategies that were that were enacting that type of of selling pressure.

So I don't know that the fundamentals really were ever called into question. I think when you look now at where they are at this moment and where can they go from here? I still think Microsoft is the more diversified company. When you look at the layers of the cloud stack that they have, I don't think any other company in the world could compare to that. How do you respond to that, Mark? I will make one point, which is what I find so interesting about Google, I like Google and why I especially like Meta is the Silicon Valley discount. Both of these companies have their stocks. I know that sounds odd to you, but the earnings growth here is the same or better than what you get out of most other tech

companies. I'm throwing Apple in there. I'm throwing CRM and Salesforce in there. I'm throwing Microsoft in there. And yet the multiples are 25 to 30 percent below what you have to pay. You know, you're paying 18 times earnings for Google versus, you know, 28 times, 27 times for Microsoft. And I think that I think I think And I think actually that's probably a negative statement about Google management. They had to fix their road a little bit in their narrative about AI, but there are other things they need to do. They need to act as better corporate citizens. I think they will do that.

I think they'll be more aggressive about share buybacks, do dividends, be more cost conscious. But if they do all that, I just think there's more upside to Google as a stock than there is for some of the other tech companies and particularly for meta. So that's kind of my comeback on that, which is that, you know, yes, it's outperformed Microsoft year to date, but it trades at a 25 percent lower multiple. I don't think that's right. Dan Ives also said, Mark, that Microsoft is taking share from AWS. Azure is the cloud business. Is that true? I think that's true. And I think that's clear in the last two quarters. But for one very

specific reason, which is Azure is much more based on enterprise and government. Those spending pools are much more kind of consistent, if you will, in this macro environment. AWS has always been much more geared towards startups. And the startup land is soft right now. That'll change, though, in the next year. And so, you know, the narrative right now is Azure is taking market share. I bet you that narrative changes in the next 12 months. And I kind of like Amazon here before the narrative changes. Dan, how about the, you know, no one's saying it's a winner take all and it's probably not a winner take most. And as Mark said, there are many players. But how do you know no one's saying it's a it's a winner take all and it's probably not a winner take most and as mark said there are many players but how do you view let's say a meta uh we haven't even discussed apple and who knows what they have up their sleeve they

always got something up their sleeve so we need to wait and see what they have to bring to the table too but how would you address the the sea of competitors if you will who are out there oh i think this is a massive opportunity. I'd say golden age, almost transformational for the rest of the pack. When it comes to meta, in terms of what they're doing on generative AI, how they can monetize their base, I think you've seen that U-turn from Zuckerberg. There's a monetization opportunity that I think maybe the street's not factoring in there. And Apple, I think they're keeping it close to the vest.

And I think you'll start to see the developer conference next month. Cupertino talk about some of their AI initiatives. And, you know, Apple's not going to be on the outside looking in when it comes to AI, especially with that golden install base, 2 billion iPhones. You did add Apple back. I did. I'm glad that I did. You know, just listening to this conversation with Dan and Mark, I mean, in reality, if tech is able to grow as a percentage of GDP, the way that we expect that it's going to, I think all of these companies are going to benefit.

You're talking about right now tech as a percentage of GDP only at 5%. That's going to grow to double digits within the next three to five years and go well beyond that. That's a world where it's not winner take all. It's everyone's going to be able to participate, enjoy, and succeed in that. Yeah, but you better have deep pockets, right? Well, the concern that I have is if we have to spend money and they all have they have deep pockets. I agree with that. But if we have to spend money, who are you more confident in to make more effective decisions on spending? From my perspective, it would be Microsoft right now over Alphabet. But Alphabet could prove us wrong. Right. Mark, give me a thought on that. And then, Dan, quickly after

that, this idea of we talk about the rewards. We don't talk about the spend. How expensive this is going to be, Mark Mahaney, for all of these players and what the implications of that are on these balance sheets? Well, two quick points. You know, I think the winners in AI are going to be those companies with access to three big pools, pools of capital, pools of data, and then pools of access to the top flight AI data scientists and engineers. And there's only so many of those. I think that's probably going to be the biggest governor growth. So we're not going to have that many winners. I think there'll just be a handful of really big winners.

And then to Joe's point, I think the market kind of agrees with Joe on this. That's why Google has this discount versus Microsoft. It's 25% PE discount. It's that the market doesn't believe that Google can allocate capital as well and be as disciplined as Microsoft. It's 25% PE discount. It's that the market doesn't believe that Google can allocate capital as well and be as disciplined as Microsoft. So this is kind of the throw down to Google management, like prove them wrong. And I think Meta got this. I think Zuckerberg has got this and you get this great, you know, re-rating in the stock opportunity ahead for it. If Google can do this, if Google management can

realize this, I think there's a lot of upside to the stock. I'm hoping that they'll realize it. I don't know whether they will. Last and quick, Dan Ives. I mean, I think Joe nailed it. The street wants these tech stalwarts to spend on AI in this arms race. Otherwise, they'll be left behind going 45 miles right lane. Guys, that was fun. I appreciate it very much. Dan Ives, Mark Mahaney, and of course, Joe Terranova. Let's get to our Twitter question of the day. We want to know which AI player has the biggest upside opportunity. We're talking stocks. We want to know what you think. Microsoft, Alphabet, Apple, or Meta. Head to at CNBCBC closing bell on Twitter to vote. We got the results coming up a little later on in the hour. In the meantime, let's get a check on some top stocks to watch as

we head into the close. Christina Partsenevalos, as always, is here with that. Christina. I shouldn't be smiling because right now the Food and Drug Administration did not approve a new therapy treatment for bladder cancer, and that's sending shares of Immunobio plunging over 55% lower today. And what makes matters worse for this company is that in filing with the SEC, Immunobio reiterated doubts about its ability to remain in business. And so that's why you're seeing this stock really sell off. Online broker Robinhood still hasn't turned a profit since going public in July 2021, but its latest Q1 results show it's cutting operating expenses,

increasing monthly active users for the first time in two years, and increasing average revenue per user. Next week, the platform plans to launch 24 hours a day, five days a week trading, but only for about 40 well-known stocks like Tesla, Apple. That's not expected to move the needle too much, but shares are over 5% higher today. Scott. All right, Christina, we'll see you in a bit. We're just getting started.

Up next, PacWest plummeting in today's session. We're drilling down more on that move lower, what it might mean for the rest of the regional banks as well. Plus, we have top technician Jason Hunter, J.P. Morgan, breaking down the charts and weighing the odds of a recession. He'll tell us where he sees stocks heading from here and what it could mean for your money. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. PacWest shares getting slammed today, down another 20 percent.

Our Leslie Picker is here with what is driving this latest leg lower. Leslie. Hey, Scott. Yeah, it's basically one number, 9.5%. That's the amount by which PacWest's deposits declined last week alone. Excessive volatility in PacWest's stock price sent customers fleeing, particularly last Thursday and Friday. That was all revealed in a 10Q filing this morning. Analysts say nearly all of last week's outflows stem from the niche

venture capital community, which were spooked by headlines saying PacWest was exploring strategic alternatives, including asset sales and an outright sale of the bank. PacWest has taken other steps to shore up its balance sheet to match those deposit outflows, including cutting its dividend, moving an additional $384 million of loans to held for sale and selling $431 million of loans through May 5th. PacWest said its liquidity stands at $15 billion, which represents a very respectable 288% coverage ratio for uninsured deposits. But despite what appears on the surface to be a pretty well-capitalized bank, PacWest and several of its peers facing significant declines today. Now about a half a billion dollar

market cap stock trading around 0.26 times book value. And just for comparative purposes, not saying it's headed in this direction, but Silicon Valley Bank and Signature Bank had about double that multiple before those two failed in March. Scott. All right, Leslie, appreciate that. That's Leslie Picker. Stocks are mixed amid those continuing fears surrounding the strength of the banking system. My next guest says the S&P is, quote, on the cusp of a sharp slide, which could lead to even higher odds of a recession. Joining me now, Jason Hunter. He's of J.P. Morgan. It's good to have you back. Why do you think the technical setup so favors, you know, a slide? I've been hearing a lot of that, frankly, over the last many weeks.

And this market has just proven more resilient than I think some of the fundamental analysts expected and certainly the technicians, too. Yeah. Thanks for having me back again. And in fact, I mean, the last time I was on your show was about a month ago, and I'm pretty sure the S&P was trading just about in the same spot it's trading right now. So I would say as a bear and someone who's been bearish since the start of the year, we first got negative when the S&P got up near 4,100 in December, the middle of December, and have been that way since. It's been a bit frustrating, but if anything, as time has passed, while the headline indices

have stayed roughly where they are here, we've gotten incrementally more conviction in the view through the internal rotation. So number one, the market leadership's gotten more and more clustered into just a one spot. There's a handful of stocks that lead the market. You can see just by looking at something like the S&P 100 against the S&P 600. So large cap over small cap, that tells the story right there. It's been mega cap leadership that's keeping the market bid where it is. Underneath the surface, you've seen cyclicals rotate to defensives. Again, large cap to small cap, that's all consistent with a late cycle environment. We've seen bull steepening in the treasury curve really start to take hold, not just in equities, but in other

global markets like industrial metals under pressure. All these things are consistent with late cycle environment. The equity market has held up and it's been more of a flight to quality than flight to cash up until this point. And that's hung on a bit longer than we thought it would. But we still think that's to come, that you will see the eventual more full pricing for recession probability. I know, but these are not they're not like these are lousy stocks. I mean, it's hard to chip away at these things. There's a reason why the money's gone there in the kind of environment we're in. I mean, I could see if maybe we're talking about another sector or I mean, they got the best balance sheets.

They got piles of cash. That's right. And really, like I said, this is typical late cycle behavior where as growth starts to decelerate but not move into negative territory, the money moves into the more quality names and you get more and more concentration as you go. That's why, from a technical point of view, you see the breadth really start to thin out and the leadership really start to dwindle to a handful of stocks as you get later and later in the cycle. But at some point, and as the growth data starts to decelerate more toward negative growth territory, that's when you tend to see flight to quality

turn to flight to cash. And you see that rotation, where we actually think these mega cap names may temporarily, a brief period, they may be more at risk than the more cyclical companies because of the crowding that's developed here. I wonder though, you know, as some might counter and say, maybe we are at the beginning of a new cycle fueled in part by AI and all of these advancements that we're talking about. And maybe we're looking at this wrong. Yeah. So, I mean, if one's going to make that argument, what you

typically look for are, you know, what's typically the tip of the spear, the leading cyclicals, you know, things like a copper gold ratio, the semiconductor space overall, not just the ones particularly, you know, in the AI space the AI space. Financials versus utilities. What you have here is actually over the last several weeks, cyclicals coming under more pressure versus defensives, not the other way around. So unless you're telling me it's AI specifically that's going to drive this, and just this small handful of names is going to carry the market into a new cycle and make up that entire leadership the whole time. Like, could it be different this time?

Sure. It's happened in the past where it's been different. But what's consistent with other late cycle environments to what we see right now, it's a fairly typical story. You see the thin leadership and then at some point the growth decelerates enough to cause a true flight to cash and the crowded names, like I said, for a brief period, you can see the quality come under more pressure than even the you know small cap or cyclical sectors i'm just wondering you know if it may help you um tread water so to speak for a while uh stay in this

tight range uh amid uncertainty about the economy which is the reason why cyclical stocks haven't done well until we can further answer the question of whether we're going to have a soft landing or not and if these large stocks can help keep you afloat until we can answer that question maybe you get through the rough waters and get and you you actually have the ability to get the market to the other side yeah so and then that's where like we've used a number of models to to help make our case over the last few months one of them is let's say if it is the soft landing scenario where the Fed doesn't have to ease through neutral rate. Well, one of the models we have looks at Fed expectations and economic surprise data, things like that. And it's a regression based model and it predicts where the S&P should be based on Fed expectations of how high is the interest rate expected to get in the tightening cycle.

And then how low is the policy rate expected to go in the subsequent easing cycle. Right now, the fixed income market is effectively priced for a soft landing. And many people, I think, rightly make the case that it's not really looking for a soft landing. It's basically a binary bet. Is the Fed not going to do anything at all? Or is the Fed going to have to do a lot of easing as we move into the latter months of this year and into next year but as it's priced right now it's it's effectively pricing for a policy rate to move back to neutral which one would say is consistent with a soft

landing even if that's the case on our model the upper end of where the s p should trade here is 4200 maybe 4250 um you know based on on how it's traded over the last two years. So even in that scenario, the S&P is at $4,200, is in a way fully priced. I got to go, but what's the downside number then that we should watch? So we think our base case is still that we're going to see a retest of the $3,500 low that we saw in the fall, and that should set a cycle bottom, especially if you see the curve continue to bull steepen. That will help set the stage for a cycle bottom as we move into the summer months. Jason, I appreciate it as always. Thank you. That's Jason Hunter, as you can see from J.P. Morgan. Up next, five-star stock advice. Capital Wealth Planning's Kevin Simpson is back to break down his latest trades. He's going to

tell us where he finds opportunity amid the volatility in the market. He'll do that right here on The Closing Bell. Two minutes. Dow closing in on its eighth negative session in the past nine. Investors grappling with more economic data, the debt ceiling deadline, more banking turmoil. However, our next guest is still finding opportunities in the market. Joining me now, Kevin Simpson, CIO and founder of Capital Wealth Planning. It's good to see you. You always seem to find some opportunity somewhere. And today it lies in Walmart. You bought it at one hundred and fifty two dollars. It reports next week. Why WMT? Well, you know, we're thinking that if we go into a recession, Scott, that there's a chance that the consumer downgrades a little bit on their spending.

Oftentimes, Walmart becomes a beneficiary of that. We like the dividend. We like the dividend growth. We like the lower beta versus the broader market. The one thing I don't like about the stock, and I'll be completely honest, the multiple is a little bit high for us at this point. So we took a very small position. We're initiating a new trade. We've owned it before in the past successfully. But when we get earnings next week, what I'm going to be listening for isn't necessarily the numbers that they did in the first quarter, but what we're looking at as far as the margins moving forward. What are they projecting for the year end and what do they feel the consumer is going to look like? Because that'll tell us a lot that the stock sells off. We'll

continue to add to it. It takes us a long time to build into a position, but I feel like it's a good defensive play here. All these with covered calls. I mean, I just want to make sure that that, you know, our viewers who don't see you all the time understand what your general strategy is and it doesn't hold true for everything you do. That's correct. So Walmart, we're just building the position. We don't have any options written against it. I really enjoyed the conversation about Microsoft earlier with the gang. We do have a $320 call on Microsoft that expires next week. But we're very tactical about the covered call writing. Sometimes we're criticized for being a little bit too frugal about it. But generally, if we like our names long term, they can trend higher. And sometimes you get a stock called away and you wish you hadn't. So very tactical

from that front. Walmart's a position that we're building out. No covered calls on it yet. I got you. OK, you bought more Merck at 118. Tell me. Same thing that we're having the discussion around Walmart is sort of the end process with Merck. You and I have been talking for weeks, if not about a month and a half, as we've been building in, building Merck we love the earnings they beat top and bottom line we love the dividend very strong dividend growth. The multiple for Merck

moving forwards a little bit under seventeen. So we like that. Massive cash machine. And we build out a five percent position. So we're set we're done we have written calls a little bit along the way with markets they were approaching

earnings. Got lucky they didn't get called away because the stock's been trending higher. But if our theme on health care for the year makes sense, we feel very comfortable owning best of breed in Merck. Tougher metals and mining and other commodities for obvious reasons were, you know, got that China data was weak and you made a move. I wonder if it was indirect, you know, a direct result of the weaker data. You sold Nucor at 140. Yeah, and we bought it at 160. So it's disappointing. You hate to see a stock go down. But sometimes we buy them and they don't always go straight up.

We love the multiples. We love their earnings top and bottom line. We think the theme for steel specifically will be great coming out of a recession. But to your point, if the China reopening story isn't really playing out, we're not going to sit here and hold it forever. You know, our good friend Joe might still be sitting next to you. He was having an existential conversation with himself yesterday about selling a stock that was down. Yeah, I recall. It was awesome. They go down, we sell them, we move on. We're pros. One good saving grace for us with Nucor, Scott, is when you talk about covered call writing,

we were very aggressive on the call writing. We brought in about $13 of premium this year. So even though the stock's down 20, we've got a little bit of a $13 cushion in the options. So maybe we're out of the position with a $7 loss. You're showing it now, and it's lower from where we exited. So I feel smart for the moment. I got you. Kev, good to see you as always.

We'll see you soon. That's Kevin Simpson, Capital Wealth Planning, joining us up next. We're tracking the biggest movers heading into the close. Christina Pretzenevalos is back with that. Christina. Well, activist investor Elliott Management has a new target. Here's a clue. The stock is far from flat today.

No pressure if you can't guess it. I'll have the answer right after this break. We got about 15 minutes to go before the closing bell. Let's get back to Christina Partsenevelis now for a look at the stocks that we're watching. Christina. Let's start with the maker of high-end speakers, Sonos, warning that demand is dropping off and that's sending shares right now plummeting 25% today. The cut to revenue and EBITDA guidance has to do with, quote, softening demand and channel partner inventory tightening. Did you guess which stock I was talking about?

Goodyear Tire and Rubber shares soaring above 19% today after an attack from activist investor Elliott Management. Elliott owns roughly 10% in Goodyear and sent a note or a letter, I should say, to the company's board highlighting weak board oversight, poor margin performance, and suggesting a sale for the company might be best. In other words, Elliott Management wants to find value in Goodyear Tire, and that's just what investors want to hear, and that's sending shares higher. All righty, Christina, thank you. That's Christina Partsenevelos. Last chance to weigh in on our Twitter question. We asked, which AI player has the biggest upside opportunity, Microsoft, Alphabet, Apple, or Meta? You can head to at CNBC Closing Bell on Twitter.

We'll bring you the results after this break. All right, the results of our Twitter question. We asked, who's got the biggest upside opportunities from a stock standpoint? There you go. Wow. Alphabet and Microsoft neck and neck. I love it. 36 and a half each.

Met at the bottom. Apple still at 18. Wow. Very interesting. All right, up next, Peloton's rough ride that stock is. Well it's had an ugly year and a tough day today down there it is now. Almost nine percent will tell you

what's sending it lower when we take you inside where else. The market zone. All right we're now the closing bell market zone. CBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Marcy McGregor of Bank of America Merrill Lynch on why defense is the best strategy in the market right now. Steve Kovach taking a look at what's behind the big plunge in Peloton today. But we are going to talk first, Mike Santoli, about Tesla.

Take a look. Intraday. A few moments ago, that stock, there it is, the spike. Why? Perhaps because Elon Musk himself has tweeted moments ago, quote, excited to announce that I have a new CEO for X and Twitter. She will be starting in six weeks. Unnamed person, of course. My role will transition to being executive chair and CTO overseeing product, software, and SysOps. I believe it's systems operations, not psychological operations. Okay. All right. So, look, I mean, people have

been making the argument, how can he have his attention in all of these different places? And the one they seem to care about more than anything, obviously, if you're a public markets investor, is Tesla. Right. So the perception is Tesla has been the orphaned company as he's been fixated on getting things, you know, straight at Twitter, trying to finance the company and all the rest of it. We don't really know. I mean, he also did say he was going to look for a permanent CEO for Twitter some time ago, and there's been no reported movement on that. So you see the knee-jerk reaction. It's not clear necessarily that the thing that's been weighing on Tesla's shares and business is the fact that Elon Musk is CEO of multiple other companies, simply because you're still dealing with, you know, potential demand issues, the competition from China. Price cut after price cut after price cut. Margin's already there. Maybe a stale model lineup. But of course, it's good enough for the

stock to twitch higher by a couple percent on a reflex. Yeah. So we'll keep our eyes there as we head towards the close. Marcy McGregor, I know this is stealing our thunder in some respects right now. And look, the market's been pretty resilient. You know, there are a lot of headwinds today. And you could point to three or four different ones. But yet, we're kind of hanging in. What's the message there?

You know, I'm actually a little surprised by this market, both yesterday and today, that with the data showing inflation was actually cooling pretty rapidly, that the market didn't get more of a rally. I think that shows lack of conviction. Between now and Memorial Day, it's going to be all about the debt ceiling because when Congress heads out on recess, that's the real deadline earlier than Janet Yellen's June 1st deadline. So I think this is all about uncertainty ahead of the debt ceiling. But the market's hanging in. Both parties are still talking. They're still making progress. So I think that's a positive sign. Are you worried about the debt ceiling impact on the market? And at what point does the market truly care? So I think it's exceedingly unlikely that we have any sort of issue around the debt ceiling. We have to remember the debt ceiling

has been raised or amended over 100 times since World War II. But you may get some volatility here over the next few weeks. I think that would be a buying opportunity for clients to call, have it a two- to three-year time frame. What I don't, to kick the can down the road so we deal with this again in the fall, so I think you get to deal with this before Memorial Day. Oh, wow, so you're a dip buyer, right? Because we just had a technician from JP Morgan suggest that we're going back to thirty five hundred of the last fall lows.

You don't see that transpiring? I think we have a choppy few months ahead of us, but it's all about your time horizon. If your time horizon is two to three years from now, I think any volatility, call it around the debt ceiling or I think over the summer, as data starts to really confirm that the economy is slowing or I think over the summer, as data starts to really confirm that the economy is slowing, I think you get some more kind of cuts to EPS estimates. That's an opportunity, I think, again, for long-term investors. And you like the U.S. over anywhere else in the world, despite some calls for an opposite strategy. Yeah, I like the U.S. right now, and I keep coming back to the Fed. The Fed's

a lot further ahead in their fight against inflation. If you look at Europe, ECB, Bank of England, they're earlier in their hiking cycle. So on paper, that makes me like the U.S. more. Now, on my shopping list for when we start to pivot towards recovery is likely emerging markets. You know, we all know about China's reopening consumer story, but I think there's an investment and a credit cycle that's starting there that I think could be really interesting again once this cycle starts to pivot. Marcy, I appreciate having you as always. Steve Kovacs looking at what's going on with Peloton today. Steve, ugly. I mean, you pick whatever word you have, but that's what it looks like. Yeah, let's go with plunging because that's what Peloton shares are doing, Scott, today after the company announced a recall of more than

two million of their exercise bikes. The Consumer Product Safety Commission warning the seats of some models could break without warning, leading, of course, to injury. This isn't the first major recall, though, for Peloton. In 2021, the company recalled some of its treadmills after the death of a child who was pulled under the machine. That model, called the Tread Plus, is still off the market. Now, Peloton says it will give updated seats without the defect for free to customers using a recalled model. And besides hardware issues, though, Scott, the company reporting earnings last week, and it's expecting its first ever decline in subscribers.

And you see shares down almost 9%, Scott. All right, Steve, appreciate that. Steve Kovac with the latest on what's happening with the Peloton plunge, the word he used. And we'll go with that. Mike Santola, we come back to you again. I mean, look, you have a number of things you could say. Well, this is why we should be down a lot today. And we don't even really mention China all that much, but their numbers were weaker.

We've got the regional bank problem and a few other things, too. And yet this resiliency or as you've been making the case, nothing to answer the question yet on where we should go and why. Exactly. And, you know, every issue we're bringing up today, we've been living with for a while. That's why I think the market is it's really just chewing over it in this measured way as opposed to being shocked by any one headlines. You know, things I would look for, you know, the banks made their low at the open and then there was a little bit of differentiation.

They've kind of managed to grind their way higher. That has allowed, you know, something besides the big NASDAQ stocks to do the work. It's very noncommittal, right? We have this market that has a fear of commitment because it looks like all these things that we're worried about is buying us a Fed pause before the economy has fallen apart.

I know that the continued concerns about the weak breath in the market are almost overshadowing everything else, the whole conversation. And I guess my question is, what is it that worries people about a handful of stocks creating the bulk of the upside is it that those stocks are going to go up from here and then someday fall back to where they are today. Or is it that it somehow obscures the pure message of this market which is the economy seems to be slowing earnings are flattening out or worse. And the market gets it and it's kind of it's kind of metabolizing that as we go.

The other thing is, I just looked. There's about 100 stocks in the S&P 500 within 5% of a 52-week high. So that's a 20% of the indexes around there. It's a lot of semis. It's a lot of homebuilders. It's certainly some staples in health care. But it's also things like GE and Tractor Supply and Monster Beverage. So it's a little more eclectic than just, you know,

Apple, Microsoft, and Alphabet today. All right, good to see you. You have a good one. We cut the Dow losses basically in half today. We'll still go out with a loss, but not as bad as it was. That does it for me. I'll see you tomorrow.