Closing Bell - Closing Bell: Mega Week for the Mega Caps 7/30/24

Episode Date: July 30, 2024

Microsoft is the big name that every investor will be watching after the bell. Trivariate’s Adam Parker and Alger’s Ankur Crawford reveal what is at stake for that name and the rest of the tech space. Plus, star chip analyst Stacy Rasgon tells us what he is expecting from AMD’s report in Overtime. And, a major move in Merck stock today. CNBC’s Angelica Peebles tells us what’s behind that big drop. 

All right, welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make-or-break hour begins with the countdown to Microsoft earnings in overtime and what that could mean for the tech trade, which is under some selling pressure yet again today. By the way, there are Microsoft shares. They are down ahead of that print. We're going to ask our experts over this final stretch where that stock and the sector at large is likely heading from here. In the meantime, let's show you the scorecard with 60 minutes to go in regulation. We will, of course, start with the Nasdaq because it is the lagger today, the big underperformer. Several mega cap names are dropping today. NVIDIA is the biggest drag. Tesla's down.

Some of the other names, though, have actually come off the lows. Moment ago, Apple was positive, though. It's still in negative territory. There's Tesla. There's Amazon. It's been a tough day for the Dow component. Merck as well. That company cutting its earnings outlook from prior levels. And it was down substantially earlier, still is, by about 9%. So it's getting hammered. We're going to watch that.

So is CrowdStrike. Yet again, that stock down heavily today. Look at that, almost 11%. All of it takes us to our talk of the tape, the mega week for the mega caps, not to mention the Fed decision tomorrow. Oh, yeah, don't forget about that. Let's welcome in Adam Parker. He's the CEO and founder of Trivariate Research, a CNBC contributor.

He's back here at Post 9. It's good to see you. Good to be here. So your notes jump out to me today because you say the probability of the bear case is higher than it was at the beginning of July. Yeah. Why do you think that? I think I got more negative looking at the totality of the consumer health last week.

I mean, if you really look at the major, I try not to focus on one little company that's small, that misses, and take a big picture. If you look at restaurants, visa, housing, you know, the autos, like the consumer slows. The consumer's slowing. And I think when we articulated our bear case, one of the things we pointed to that could get us more cautious is a consumer that's slowing down. And I think that mark to market is what happened last week. So on the margin, you have to be a little bit more negative on the economic health, I'd say.

I mean, I'll see your slowing. Yeah. But I'll raise you rate cuts. Right. Doesn't that matter? It does matter. I would argue that the market is a little bit ahead of the Fed. Right. Meaning that the market was certainly anticipating some accommodation. But you don't think it's going to happen? Well, I think it will. But I think that some of it's in the price. We track this rolling relationship between Fed fund futures, so what people think the front end will be two years from now, and the price of forward earnings or the multiples for growth stocks. And it's currently around zero, meaning the market doesn't actually know if it's going to be great at the moment. Obviously, 21, 22, hawkish, terrible for equities, terrible

for multiples. But I think right now people are confused. There's a lot of competing data. Maybe they have to cut a couple of times. Then next year you get some tariffs and you get some inflationary pressure. And then I don't have a clear path that it's enough to hike. So it's more confusion, uncertainty. And I think that's why I'm not exactly sure it's like awesome for multiples and enough to offset the slowing earnings. You actually think that the Fed cutting in September could be a sell the news event? I do. And I wrote that in my second NFL look. It does sound, your facial expression is merited because in the last 15 years, I'd be certainly stupid to fight the Fed. And I and everyone else has said, don't fight the Fed. But I think this time,

the question is like, why are they doing this? Because the economy is really slowing materially. Both. They're doing it both because inflation has come down. And yeah, the labor market's softened enough that they now need to err on the side of a little bit of caution before it was, hey, we don't want to go too soon. Now it's, we don't want to go too late. So I think the part that I feel confident in is that the week-over-week change in the Fed balance sheet is statistically significantly associated with the week-over-week change in the equity market. So finding the Fed was going to do a ton in the balance sheet in addition to the front end, I wouldn't be questioning. As I've been out marketing the last few weeks around, you know, I don't think it's as crazy when I talk to investors. A lot of people say, yeah, I could actually see a little bit of a sell of the news this time because it will only be happening of more uncertainty and kind of a surprisingly slower consumer.

So I thought it was going to be a little out of consensus or crazy. And as I talked to, I'd say 30% of people kind of agree with me that it could be a sell of the news thing this time. Would you think that if the mega cap tech stocks and the sector in general wasn't underperforming lately, does that only add to your skepticism about the market as a whole? I mean, I actually think we're going to end up, you know, we get at the end of earnings season, I think, you know, NVIDIA at the end of August, that we're going to end up higher on some of these names. I think right now there's a rotation and there was a little bit of a for six months it was innocent to proven guilty on anything related to ai if i could dream the dream didn't get a negative data point i was in and i think we had a little bit of a reality check a little bit of you know people you know questioning the profit pools and the time to returns on those investments but when we get to the end of the month we're

going to hear all these applications from NVIDIA, what's real, and I think these stocks are going to end up being pretty good risk-reward at pretty good valuations, and I don't think you can step back and say they're crazy expensive anymore. You're going to say NVIDIA's $105,000. What was it, $138,000 on June 18th or something? So it's not like there isn't a little bit of, you know, frosting off the cake. But I mean, you don't believe in the rotation

because I talked to Glenn Kacher yesterday of Light Street. He's heavily invested in big tech. He's having an incredible first half, obviously, if you're in the right stocks, you outperform. He's not really believing in it. I want you to listen to what he told me and then we can react on the other side. Glenn Kacher on the rotation.

Sure. What I'd say is, as a tech investor, I'm trying to invest in the companies that I think are leading the next generation of great solutions and market leadership. And those companies are amongst some of the largest market cap companies in the world. And when I look at, you know, your average Russell 2000 stock, especially the lower part, half of those stocks, I just don't see companies that are going to be leading in the next generation of technology. Believe you believe that? Well, I think it depends on the sub industry. But generally, I think that if you're bullish on this rotation, you think it depends on the sub-industry, but generally I think that if you're bullish on this rotation, you think small caps outperform, you have to be bullish on equities.

Because what you're really saying is that their earnings revisions and margins are going to be better than the big tech companies. I don't think that's a likely base case. You can get tactical stuff for a few weeks on rotations and profit taking, but to really believe that small caps work, you have to be very bullish on the macro backdrop. So I'm biased toward agreeing with his view that the big cap techs will end up having good positions

and big technology moats and they'll end up outperforming. But it sounds like, is your skepticism about the economy growing because you're worried about the consumer? Yeah, I think that's right. The consumer data points got worse. And I try not to tether to the thesis, just react and get new news and say, what did I learn? What I learned last week is the consumer was slowing. I mean, I think across multiple areas,

and I'd say maybe a shade more than I would have thought a month ago. And that's kind of why I phrase it that way. I mean, you've also talked about, you know, at one point wanting to be overweight, mega cap tech, right, which is already such a massive part of the S&P 500. You had changed your view, I don't know, a couple of months ago, a few months ago. Maybe that was a little bit early, but it looks to be rather prescient. These stocks this week started with Microsoft today. Do these reports have to be perfect to go up from here or no? I think they could calm some fears as long as the guidance, you know, as the forward earnings estimates stay intact to go up,

I think the stocks go up. I mean, this week we have a lot of big earnings and, you know, some of the stocks are now down quite a bit, as we mentioned. So I don't think they have to be perfect. I think they have to reiterate some of the major themes. Look, if you're a growth BM, did anything happen to derail your view that there's going to be, you know, kind of a big, you know, AI semis, AI software, life sciences, kind of five to 10 year growth trajectory that's above GDP? I don't think so. So I don't think you're going to hear anything from the companies that derailed that. I guess we have Meta coming, too. So I think you're going to get a roadmap for what's going to work if you're a growth fund manager for the next three to five years.

And nothing is going to derail that thesis this month. Well, I mean, Microsoft's the first one today, obviously, in overtime. Steve Kovac is following that for us, as he will be when the report drops in about an hour's time. What do we need to look out for more than anything else? Yeah, Scott, I'll make this really easy on you. Three things that you should be watching here. First off, you got Azure cloud growth that has been re-accelerating in recent quarters after Microsoft helped customers cut costs in 2022 and 2023, and the streets expecting it to print 30.2% growth there. And then secondly, an important number within the Azure growth, Microsoft is going to tell us how much of that growth came directly from artificial intelligence.

That's, of course, Microsoft charging companies to run AI applications on Azure, among other things. And then the third one, how CEO Satya Nadella and CFO Amy Hood addressed the capital expenditures question last week. This is the story of the week. Alphabet shares were punished when those executives failed to give a coherent story when that spending is either going to slow down or show a return, Scott. Yeah, the CapEx numbers across the board, as you point out, are just enormous year on year. We'll see what happens and we'll see you once again. Yep. That's Steve Kovach joining us there. Ankur Crawford here of Alger is with us as well, owns Microsoft, along with many of these other large cap tech names. Are you nervous?

Well, I'm always nervous in front of earnings. So but at the same time that the stocks have come in enough that I feel like the risk reward on a lot of them, as Adam mentioned, is actually pretty good. So the more they come in, the less nervous I get. So you don't. Well, when I asked about the perfect question, right, how perfect do these reports have to be? Alphabet would suggest that they need to be pretty close to that. Yeah, but Alphabet happened and everything moved down 5 to 10 percent. So I think the risk reward, again, is a little bit different today than it was two weeks ago. And, you know, I don't think they have to be perfect.

I think the expectations for Microsoft have come in a lot. I think they're somewhat muted. If they have an in-line quarter, they speak positively about AI and the development of AI, maybe the profit pools that they can generate. I think that's good enough. So even with the valuations being elevated like some of them are, I mean, Microsoft is case in point, right? The valuation today is 31 times, 31 and a half. The 10-year average is almost 25.

Yeah. I think when growth companies are in a super cycle, you really can't value them on the next 12 months of earnings, in part because they haven't fully blossomed into their earnings power. And so when we look at Microsoft's earnings, we think that there's significant upside to the street numbers, which make it actually not that egregious on the valuation. So again, when we look at the risk-reward here from Microsoft, we think there's 5% to 10% downside and 50%

upside. So you don't look at the, as I suggested, the CapEx numbers for almost every one of these companies is expected to be up 50 or so percent year on year. It doesn't give you pause at all. You'd want to see that because, as Keacher suggested yesterday, they're leaning into this incredibly transformative technology and the spend is the spend. They just have to do it and they're going to get the return on the investment. That's right. I think the existential risk for all of these companies is that they actually underspend and they don't meet the market when they need to meet the market. And they can't get left behind in this cycle. So, you know, I actually look forward to their capex spend going up. Now, the only wrinkle in that is I'm not sure the street's thinking about the depreciation correctly

because as it works into the model, it does hamper or put a downward pressure on the gross margins. And so I do worry that, you know, Microsoft's gross margins are going to have pressure over the next few years as the depreciation rolls in. It's funny when you, you know, you think about what these companies are spending on and how the market judges it. When Meta, for example, which reports tomorrow, was spending all this money on this thing called the Metaverse, which nobody really knew exactly what that was going to be, the company stock got punished. You needed somebody like Brad Gerstner writing a letter to the company saying, what are you guys doing? Like, get your focus back, get fit, get more fit. Now that AI has stolen the show and captured the entire narrative, you can spend what you want, as long as it's on that growth opportunity.

At least the market seems to suggest that. I think we're innocent until proven guilty for 18 to 24 months on that spend. At some point, you're going to have to show return on that. But you're investing now for years 3 through 10, right? For the whole medium to long-term future. So I agree that you can't afford not to be relevant if they're going to get a lot more, you know, kind of market share and earnings or hold their share years three through 10, you've got to spend now. And sure,

there could be fits and starts for people get nervous about it. But if I look at the totality of what I'm going to hear from Microsoft and probably Amazon a little bit too, and NVIDIA, I'm not going to learn that, oh man, this investment's already not going to be worth it. I think it's going to be quite the contrary. You're going to realize why they need to do this investment. So Google, I think, is a little different because their management team historically cares a little bit less about street communications. And so I could say that's a little bit company specific. I doubt you'll end the earnings season on August 28th with NVIDIA and say, I now doubt the return potential for AI. I think that's unlikely.

It sounds, Ankur, as well, like you look at the pullback that the space has suffered, right? A number of these stocks are significantly off of their highs hit not all that long ago. Another thing Glenn Kacher told me yesterday when I asked him the question, do you make much of the pullback? He said, no, I don't see it as being a big deal at all. Here's what he said, and we can talk about it on the other side. It's very typical for summer to kind of people go away. They want to reduce their books a little bit. We've had a little bit of a sharp correction here in the last month. It's normal to see a little pullback. I think it's healthy.

I think a little bit of skepticism around AI helps keep things in check, even though we think it's the biggest investment cycle that we've seen in our careers. This is much ado about nothing, essentially, is what Kate you're saying, as I paraphrase that. Look, I agree. I wholeheartedly agree with what he's saying. But I do think there's another layer on top, which is, you know, if the Fed does start to cut, it will pull money into small and mid caps, whether or not they deserve to be getting that multiple or that capital, it will pull money as people hope that the earnings trajectories will start to grow again at some point six to nine months in the future. And that's a trade of hope versus some of this AI trade.

I mean, there are real examples today of the benefits of AI and how much money people can save. That's today. We can prove why you should be investing in AI today. So, you know, I wholeheartedly agree with him. Can the rotation continue for a little while? I think it can. I think we can get a really choppy market for a bit. But, you know, I agree with Adam that two, three months from now, we're higher.

The dream is so, so powerful. Like, let's just cut this all out. What is equity investing? I buy my little dream today. I sell it to a sucker with a bigger dream later. That's what we're all trying to do. The dream got a little high, and now the dream's coming in. I think it is healthy.

I totally agree with him. I'm taking this course right now, AI for Healthcare, at MIT. It's like six to eight hours a week. I'm already learning like 70 things I didn't learn. Like drug development and computational chemistry and reading in images. We're not even in the first inning of this stuff. The idea that like, oh, we first found out about AI with NVIDIA's upper revision in May of 23, and it's over on August 1st of 24 is preposterous. These stocks are going to be way higher in three to five years.

If you say that, and then... We're in a pocket of the consumer slowing. Okay. And the risk reward, the stocks are up a lot. And so I think it makes sense that they're in a little bit this month. That's kind of my reaction. But isn't the consumer slowing? I mean, how do you get a soft landing without something slowing? The whole point is that it's not breaking. Yeah. I don't think it's a break. I think it's eroding, not imploding. But you don't sound like if Chair Powell tomorrow takes the podium and leads the market to believe cuts are coming in September, that that's a positive thing on top of what you just said about making the case over the transformative AI. Yeah, I think it's relatively better for the exposed companies and worse for retailers and real estate's up the most this month in the S&P. Does that make any sense to you? Do you think the fundamentals of the real estate

sector are going to be better than the fundamentals of AI semis? No, of course not. You get rotations for one month. I think my bet is we're almost done with this rotation and that we'll be higher because these companies are the best companies and they are going to be in a winning position for multiple years. And I don't think that dream is going to turn into a nightmare in the next month. I think you're only going to take a step back and say, wow, I didn't realize all the things it could do to real-life examples now and dreams of more examples later. So, yeah, I'd like to rescore on these big stocks. What happens tomorrow? What were you betting that Powell does, says, and how the market's going to react?

Look, I think he probably signals for a rate cut in part because of what Adam said, that the data points on the consumer have gotten worse and he has to react to it. And he has talked about being data dependent. So, you know, he'll signal for a rate cut probably. Maybe he'll do a rate cut. If he does, I think the IWM does take off. But, you know, it kind of doesn't matter when it comes to these big cap tech stocks, to be completely frank, in the long term. Because the free cash flow and the platformization of all this technology is really going to drive a significant amount of growth.

Let me just ask you quickly before we wrap it up about NVIDIA specifically, the move that we're seeing in the stock. What are your thoughts about it? I think at points in time for a stock, they get overbought. This pullback is expected. I agree with Glenn that it's really healthy. I think we talked about $5 in earnings, which is really where the whisper is on the street. We're trading at 21 times that. That's, you know, not including any cash that they'll generate. I think it's probably close to being done. All right. We'll see. I mean, it's down a little more than 6% today. And perhaps Microsoft is going to be a tell, you know, as to where all of these stocks go, even ones that are, you know, in a chip space relative to a software company.

It's all seemingly tied together. It's good to talk to you guys. Yeah, great to see you. Ankur and Adam here at Post9. Let's send it to Kate Rooney now for a look at the biggest names moving into the close. What do we see, Kate? Hey, Scott. Yeah, let's start with shares of Procter & Gamble.

Those lost about 6% today. The company reported better than expected earnings, but quarterly revenue did fall short of Wall Street estimates. P&G says disappointing demand in China weighed on its results. Silver lining, though, despite some of the weaker sales, companies' volume increased for the first time in more than two years. And then you got PayPal on the other side, one of the big winners today, rallying around 9% after reporting second quarter results that were better than expected. Wall Street reacting to this boost, though, in the payment company's full year earnings guidance

and then this increase as well in share buybacks. Q2 earnings and revenue were well ahead of analysts' expectations. So all of that helping that stock, Scott. I appreciate it, Kate. Thank you. That's Kay Rooney. We're just getting started here on Closing Bell. Up next, earnings in the Fed front and center with more mega cap reports. The Fed decision is looming, of course, over this market as well. We discuss how to navigate this uncertainty, how it could impact your money with our all-star panel. Plus, we are getting you set up for AMD results in overtime. It's not all about NVIDIA. AMD is a big mover

today, too. As we watch those shares, top analyst Stacey Raskin is going to join us with a rundown of what he is watching for ahead of that print. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. We're back. Investors bracing for a critical 48 hours ahead. Two mega cap earnings reports and one of the most significant Fed meetings in months. Joining me now, Samir Samana of Wells Fargo and CNBC contributor Bryn Talkington of Requisite Capital Management. Good to have you both. Samir, I'll go to you first. What do you expect over these critical 48 hours?

Market's going to like what they get? You know, I mean, we're pretty oversold. It wouldn't surprise me if we get a short-term balance. But I think this pullback, if you want to call it that, kind of sticks around for a little bit. You know, it wouldn't surprise me if we're still talking about a lot of what we're talking about today in three months when we're reporting, you know, Q3 earnings. I think, you know, the doubts't surprise me if we're still talking about a lot of what we're talking about today in three months when we're reporting Q3 earnings. I think, you know, the doubts around AI probably linger. I think the concerns around the elections and the uncertainty probably linger.

And I think, you know, how soft the economy is, I think that's still kind of to be decided. You don't believe the hype about the rotation, do you? No, we are not fans of small caps. If anything, we'd be fading the bounce there. I mean, you don't want to be heading into an economic slowdown and Fed rate cuts with small caps as kind of your favorite position. Why do you say that? Because some would make the case that that's where you want to lean into with the rate cuts coming and yields falling. Yeah, so look, what we learned with the rate hikes was they work with long and variable

lags. And I think those rate cuts, which will be few and far apart, will also work with long and variable lag. So for small caps looking for relief, they might get it sometime next year. So you continue to lean large. You think earnings this week from large cap tech sort of reverse what we've been seeing of late with a pullback of, you know, reasonable size from the highs that these stocks hit not that long ago? Yeah, I mean, I think maybe one day moves out of them. But I think the tricky part is going to be, you know, look, at the end of the day, is AI going to make people want to buy more yoga pants, more cheeseburgers? I appreciate that, you know, maybe tech companies want to spend it on AI, but I guess consumer companies, what does it mean for people buying things? I'm not sure it necessarily moves the needle when, you know, people are struggling to buy, you know,

kind of a $5 value meal. Are you positive or negative on the overall economy? Because you want people to add to industrials and financials and materials, cyclical areas that would theoretically suggest you think the economy is going to remain reasonably strong. Sure. So I would think about it as a barbell because we're unfavorable on small caps. We're unfavorable on consumer discretionary. We're unfavorable on real estate. Right. So you've got some good sectors that are very cyclical and then you've got some sectors that are really going to struggle in the coming months that are also cyclical. So it's a little bit of a barbell. Your year-end target is what for the S&P? I have your S&P 500 midpoint at 5,200. What does that mean? Yeah, so 51 to 53

is the year-end target range. And we're know, spitting distance now. We were also there kind of in the spring and that's when we kind of started to sound a note of caution. Then you had a lot of these tech stocks going up, monsters tear, and it's not surprising at all to see them kind of revert back to where they were in the spring. But I mean, a lot of strategists are chasing the market higher. Why aren't you? I mean, it's not served investors well historically to chase markets higher. At the end of the day, you know, stocks do tend to kind of follow earnings revisions higher, not necessarily multiples higher. And I think from that standpoint, the tricky part is you're just not seeing earnings revisions move higher on some of these reports. Now, that could change after Q2 earnings are completely out. But at least right now, you're not seeing anybody, you know, blow the doors off from an earnings standpoint.

I'm just saying what, you know, you hear many investors talk about, and it's just don't fight the Fed. It worked well when they embarked on this whole thing initially with the rate hikes. Why wouldn't it work the exact same way in reverse as they embark on cuts? And it could. I mean, we still have two months before the Fed cuts. We're not in the July camp. So, you know, in two months, if there's a further pullback, if there's some more consolidation, if, let's say, earnings come through, I mean, we're looking for an opportunity. If things were to fall back into our target range, you know, we could get interested. But not if the market continues to go higher.

It sounds like you're just skeptical that rate cuts are going to initiate the next leg of this rally. I mean, I think if you had aggressive rate cuts or a true rate cut easing cycle start, you know, then I think maybe we could get interested. The tricky part is, from our standpoint, you know, we only see what we would call kind of adjustment cuts, you know, maybe two to three, depending on, you know, kind of how the economy is doing. You know, if you are into kind of aggressive rate easing, something's gone very horribly wrong with the economy. And again, I go back to you want to be up in cap, up in quality and kind of barbell against some of those more consumer oriented parts of the market. Yeah, but I mean, aren't they just moving rates back to what, you know, you would would consider to be normal? They're still considerably higher than where the, for example, the rate of inflation is now. Absolutely. That's where a lot of our caution comes from is when you have real rates that are still positive, you know, it doesn't lead to a lot of relief for consumers, doesn't lead to a lot of relief for smaller companies or more indebted companies.

So, yeah, that's exactly it is they're not really going to do anything other than maybe take their foot off the accelerator. All right, Samir, we'll talk to you soon. Thank you. Samir Samada, Wells Fargo, joining us. Up next, AMD among the big names reporting in overtime. That stock's had a rough ride lately, recently dropping more than 12 percent in the last three months. Star analyst Stacey Raskin breaks down what he's expecting from the company's report. He'll do it next. All right, welcome back. Semi's under pressure today. The SMH ETF is down more than 3%, led lower by NVIDIA. AMD is also in the red, and that name is reporting earnings tonight in overtime. Joining me now, Stacey Raskin, Bernstein Research Senior Analyst. Welcome back. It's nice to see you.

Good to be here. It's funny. There's a lot that matters in this report, but even you suggest that all that probably will matter to investors is the AI story. Yeah, that's probably going to be top of mind for most investors. That seems to be for AMD what they've cared about. Frankly, it's what's really, I know the stock is down off the peak, but if you look over the last year or two, it's still up quite a bit. Numbers have actually mostly come down for them over that period. The whole thing that's been supporting the stock has been increasing expectations for the story. And I do think that's where investors are going to be focusing their attention tonight.

OK, well, what's most important to watch as it relates to that? I mean, it's the guide for their 300 business and they've been sort of taking it up through the year. They went from, I can't remember, $2 billion to $3.5 billion. Now, the guide is $4 billion. I'd say expectations have gotten even higher than that. I think expectations for most of my clients have been in the $5 to $6 billion range. Maybe given the drawdown in the stock, maybe a little lower now, $4.5 to $5 billion, but they clearly need to take that guidance for the year up. I think if they don't take it up, nothing else is going to matter, regardless of what happens in the rest of the business. How much of AMD's issues, I mean, if you even want to use that word, and maybe I'm wrong to use it, is simply the fact that it's not NVIDIA?

People have been looking at AMD as a second source. There's a view that NVIDIA is clearly fairly dominant in what they do, and the market needs a second source. And it's a big market in theory. People have been throwing out numbers that it's hundreds of billions of dollars, which actually is not implausible. But the idea that they can get a relatively small piece of a very big market, that could drive a lot of upside. And I think that thesis on its surface makes sense. I think the issue such it is, and again, I always say this, I don't want to knock AMD for what they are. I mean, they're doing, like, even if they do $4 billion this year, it was zero a year ago. So that's objectively by itself, that's quite the accomplishment.

But in the grand scheme of things, frankly, it's kind of a rounding error given the magnitude of what we're seeing from their competitors. And if you're looking at sort of, especially as you're going forward, you're looking at the competitive roadmaps between the two, it's getting tougher, not easier. I mean, right now is probably the best position competitively that AMD is going to be. And if we're looking at what their competitors have next year, and again, if they can't significantly upside in that environment, like how do you do it as as the competitive environment gets tougher as the roadmaps continue to evolve? So I think that's that's the issue. It's not that they're doing anything wrong. I'm actually kind of impressed

with what they've been able to do with what they have over the last year or two. But, you know, given what they're up against, it's just a tough fight. That's all. It almost you sort of make make my point of the question that I asked you, right? They're doing all these things. And yet the stock's down 7 percent year to date. It's down 15 percent over a month. They theoretically have a good story to tell with a good storyteller at the top and yet it's not nvidia it's look even even nvidia and lots of the other ai names are down recently so like the whole i don't want to say the shine is coming off the ai story i'm still very bullish like on on ai stories in general but certainly you know they that whole narrative has come under some pressure am AMD's also been hit by some more company specifics up there. There's been some speculation of some of the issues,

some potential technology issues with, like, the high bandwidth memory on their parts and maybe some order push-outs or order cuts, which have impacted the stock, I think, more recently. And, again, I think as people are doing the comparison on the roadmaps, again, people are starting to realize it's just tough. And then you look at where the expectations are. Like, again, you've got to remember, this is a company where numbers overall for them have come down every single quarter for the last, like, two years. Right? So it's not even like you've got a fundamental, you know, backstop to help things.

Like, all of the stock performance has been multiple expansion as numbers have come down. We're now at the point where AI actually now starts to need to drive upside to numbers and expectations are already high. And if you can't drive upside to those expectations, like you may have an issue. What about PCs? Where are we as it relates to that? And what do we expect the company to say? So if we go through the non-AI businesses, so PCs are going to do whatever they're going to do. I think PC shipments just overall in Q2 were a little better than expected, so that's a positive. Although I suspect there's been some channel fill on the CPU side over the last couple of quarters. So the PCs will do whatever they're going to do. I think you can see some upside potentially on

data center like server CPUs. There's been some incremental data points that suggest maybe a little more positive. It is there after quite a few quarters of just horrendous results. So maybe you get a little bit of upside there. They have a gaming business. It's probably bad. I don't think anybody cares. Then they have this embedded business, which is mostly the Xilinx FPGA business that they bought a couple of years ago. That's been pretty lousy. They've been guiding for growth in the back half, but you've got some competitors I think Lattice reported last night. It wasn't so great. Auto and industrial markets in general are not good.

Embedded is probably not going to be great. And again, they've got a bit of a lift in the back half. So I think some puts and takes in the core business. But again, like if AI is bad, like it's none of it's going to matter, even if the core business is good. Yeah, I hear you. You know, your points were made. We'll talk to you soon, Stacey. Thank you.

I appreciate it. As always, that's Stacey Raskin. Don't miss, by the way, AMD CEO Lisa Su on Squawk on the street tomorrow morning, 9.15 a.m. Eastern Time. So that'll be an interesting interview and a very important one to watch as well on the other side of the earnings report tonight. Up next, we're tracking the biggest movers into the close. Kate Rooney is back with that. Kate. Hey, Scott. So next up, you remember those outages that caused thousands of flight delays and cancellations just a couple of weeks back? One of the companies involved is having a pretty tough day. We're going to tell you why. And then speaking of flights, we've got an airline stock in the move after a blowout earnings report. More when closing bell returns.

We're just about 15 from the bell. Back to Kate Rooney now for the stocks that she is watching. Tell us what you see. Hey, Scott. Yeah, so it's been a tough month for CrowdStrike. The cybersecurity company sinking more than 10 percent after CNBC reported that Delta Airlines hired legal counsel to seek compensation for that network outage that led to thousands of flight cancellations earlier in July. Companies off by about 40 percent in the past month alone. And then you got JetBlue on the other side soaring more than 12% after the airline posted a surprise profit. It said it's going to defer another $3 billion in aircraft spending through 2029. That's to improve cash flow. JetBlue has cut unprofitable routes and then slash costs as well.

It's trying to stem some of its losses as it faces higher expenses and an oversupplied domestic market. Don't miss JetBlue CEO Joanna Garrity today coming up on Closing Bell Overtime. Scott, back over to you. All right, Kate. Thank you, Kate Rooney. Still ahead, Merck. Wow. Stock is sinking today. After weaker than expected, guidance, take a look, down near 10%. We're going to drill down on that report, what it might mean for the rest of the drug makers,

because they're down too. We'll do it next. We're now in the Cl bell market zone cbc senior markets correspondent bob pisani is here to break i did that last time too this is good bob's gonna break down the crucial moments of the trading day plus angelica people's on the sharp sell-off in merc brin talkington here for one last look at microsoft ahead of those results and k rogers with a setup on starbucks which is also reporting in overtime tonight. Bob, it's good to see you. This rotation in full effect.

Yes, I'm happy because I like rotation. Reversion of the mean is a good thing. Too much overweight in tech, not healthy. Look at today here. S&P 500 down, equal weight S&P 500 up. Russell 2000 up again today. It's up 10% this month. S&P is flat.

And we have S&P mid cap also on the upside. That's a rotation. Look at that. If you can't do any better than that, a rotation. In terms of sectors, look at the rotation, even with the S&P 500. This is rotation. Energy is again outperforming.

Banks, Scott, have been on a tear since earnings came out with J.P JP Morgan, just on a tear. Retail's been strong, real estate, industrial. There's the rotation play. And at the same time, what's been going on with technology? Well, it's lagging again today. So NVIDIA down. Look, there you go.

Microsoft, of course, we're waiting here for that to happen. The 105, what's Microsoft at there? 105? Yeah. Excuse me, 424. So we are, what, 10% off the recent highs for Microsoft? All these stocks are down, you know, reasonably substantially from their recent highs. What is this about? Rate cut rotation? It's about the fact that tech earnings are still growing, but decelerating. So the story is still intact there. But people are paying too much

money for these forward stream of earnings and now starting to look elsewhere. Yes, rate cuts certainly help small cap stocks. But you know this. They've been underperforming for a decade now. It's about time we got some mean reversion. This is supposed to work. There's still skepticism, though, as to whether it's lasting. There should be. There's a lot of companies down in the bottom that don't make a lot of money. But if you select out for profitable companies in the S&P 600, there are ways to do this now. And there's plenty of companies that are down there that are doing fine. So I'm hopeful that this is going to last if the rate cuts materialize, actually, and we get a relatively soft landing, this elusive soft landing. But it's a good sign that this is going off for more than a few days.

I mean, the Dow is up 300. Angelica Peebles, it would be up even more if not for the drag that Merck is today. Yeah, Scott, Merck's HPV vaccine Gardasil is really driving today's move. Second quarter sales of 2.48 billion coming up just short of analyst estimates. But then we found out that the bigger concern is China. Now that market representing 60 to 70% of Gardasil's international sales.

And Merck's seeing a quote, significant step down in shipments of Gardasil in China. Executives saying that they were surprised by the sudden change and have a few ideas about what's going on. There's China's anti-bribery and anti-corruption campaign, Merck's Chinese distributor focusing on other priorities, and an overall decline in the HPV market. And Merck executives saying that they're still confident that Gardasil can reach $11 billion in sales by 2030,

but clearly this is shaking some investors. People don't like surprises. And that's especially important because Gardasil is Merck's second largest pharmaceutical product, and it's key to its future beyond cancer drug Keytruda, which should go off patent in 2028. Scott? Angelica, appreciate that. Angelica Peebles. Bryn Talkington joining us now on Microsoft. Give us your feelings ahead of this critical report. So first of all, we know they're going to talk about CrowdStrike right up on the bat. So I think that as it relates to what happened, how Microsoft obviously was involved,

I think that could be another bad day for CrowdStrike. But as it relates to Microsoft, this is a very different company than Google. They have open AI and that unique relationship embedded inside of the company and so I think just like last quarter as they talk about cloud AI, GitHub AI, co-pilot AI, I think you're going to continue to see that narrative build and don't forget that last quarter they had double-digit revenue and earnings growth their revenues were almost 62 billion and so Amy had talked about CapEx at 14 billion I do think it's important to do a numerator denominator. When you have a company that has 21 billion of free cash

flow, you want them to spend. And I do think they're a little bit unique. Copilot is my one concern because it is expensive. And we're going to see how many people that were beta testing actually stuck with it. Outside of that, I do think it's going to be a strong quarter. But with the negative sentiment in the market, we'll see how the market reacts to the actual numbers. All right. Yeah, we will. We definitely will. Bryn, thank you. I appreciate that. To Kate Rogers on Starbucks. And Kate, correct me if I'm wrong. I mean, the report the last time was a disaster that won't soon be forgotten. So there's a lot to make up for with this current report, right? Scott, that's right. And they did remember cut guidance for the full year.

So I'll take you through the numbers here. Coffee giant Starbucks will report earnings after market close today. Analysts looking for EPS of 93 cents adjusted on revenues of $9.24 billion for the quarter. The key figure to watch will be same-store sales projected to fall in all markets, globally estimated to drop 2.7 percent, internationally down 5.1 percent. Most important market here in the U.S., North America, sales projected to decline 2.2 percent. Starbucks, though, is taking steps to remedy the situation. We reported earlier this month on a new training system for baristas meant to improve the experience for both the workers and customers in cafes, including speeding up service times, which is key. It's

also opened up its app to non-rewards members and uncharacteristically began to offer a value deal of its own with a coffee and food item for $5 to try and capture back business. The stock is down about 21% year to date, though, and we will see what this quarter looks like. Back over to you. Yeah, we will. Can't wait for it. Kay Rogers, thank you so much for that. We'll chat with Bob into the close. So the September table set for a rate cut, if we get that tomorrow from Chair Powell, is already all in the market or no? The market is anticipating no rate cut tomorrow and at least two more rate cuts on the year that's priced into the market so Powell needs to sound moderately dovish here. He that's really important if he suddenly says oh well we're going to wait further for a longer time he's

got to give some signal and if he doesn't I think we're going to have a little bit of problem tomorrow. Let me just talk about Microsoft quickly this is a really good sign of decelerating earnings growth. So we have two ninety four on fact set that we're expecting. That's up about 11 percent year over year. That's good. But for the last four quarters, it's been very flattish. It was 299 in September 2023. So this is what I'm talking about. Earnings still will be growing in the next couple of quarters, but not nearly as fast as they have been in the last couple of years.

And then it gets down to the question of how much you're willing to spend. What is the multiple you're willing to spend for that? And investors have been saying, wait a minute, we're not sure we're willing to spend as much on that. So 10%, there's the chart there, off of the recent highs. How about Starbucks, right? You remember what happened the last time, right? A mess. When they shocked the market.

I think that's a fair word. I mean, they shocked the market. They shocked Kramer. They shock the market, I think that's a fair word. I mean, they shock the market. They shock Kramer. They shock the market. This is an important report to consumer stocks are having a really, really look at Procter and Gamble. They're getting pushback on prices. McDonald's getting pushback on prices. Starbucks getting pushbacks on prices. And you know what I say? I think it's great because this is how you slow inflation down. Consumers say enough of the $6, $7 lattes and the $12 McDonald's, the Big Macs and things like that, the high prices. And when you get that, the companies get a lot more sensitive about it. I know this is painful.

It hurts margins, for example. But overall, that's the theme of consumers, pushing back on prices. All right. It's good to see you, as always. Pop is on here. We have the post on. Bell's going to ring in a moment. Dow's good to see you, as always. Pop is on here. We have the post on. Bell's going to ring in a moment. Dow's going to have a nice game today.

Elsewhere, a little bit of a struggle, obviously, with the rotation again out of tech and into these other areas. Probably the S&P and the NASDAQ will be negative, but AMD, Starbucks, and, of course, the big Microsoft in moments. That's good for us.