Closing Bell - Closing Bell: Moment of Truth for Tech? 1/30/24

Episode Date: January 30, 2024

We are counting down to the critical earnings reports in Overtime – with both Microsoft and Alphabet on the docket. All-star panel of Alger’s Ankur Crawford, JP Morgan Asset Management’s Meera Pandit and CNBC Senior Markets Commentator Mike Santoli break down what they’re watching and what it at stake. Plus, Sebastien Page from T. Rowe Price is flagging what he thinks is the biggest risk to the market this year. And, star chip analyst Stacy Rasgon explains what he is watching ahead of AMD’s report after the bell.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make-or-break hour begins with the final stretch before arguably the biggest night of the year for the markets. Microsoft, Alphabet, AMD, all reporting earnings in overtime. AI, of course, front and center. Each of those stocks up a ton over the past three months, raising the bar and the stakes even higher. We'll ask our experts what's likely to happen in just a few moments. First, your look at the scorecard with 60 minutes to go in regulation. It's been a rough day, mostly for the Nasdaq today. Some mega cap names are in the red, including those that report this

evening. A bit of a mixed picture. We'll track it all over the final stretch. Apple selling off after an influential analyst in Asia says iPhone shipments could fall 15% this year on so-called structural challenges. Elsewhere, UPS falling on its outlook as it lays off 12,000 workers and a washout today for Whirlpool after its guidance disappointed investors. All of it takes us to our talk of the tape, the countdown to these critical earnings reports in overtime. Steve Kovach covering Microsoft, of course, for us, and Deirdre Bosa covering Alphabet. Steve, we begin with you for this critical setup. Yeah, let's set it up. And it's not just AI, though, Scott. Let's talk about Azure cloud growth, because that's all related. Look, we saw last quarter that the benefit to this Azure cloud

growth came from OpenAI. But bottom line is the better OpenAI does, the better Microsoft does, thanks to their tight relationship and Microsoft's investment. For example, for Microsoft's fiscal first quarter report three months ago, Azure cloud growth hit 29%, Microsoft crediting OpenAI for that beat. And for this report, they're expecting 27.5% growth for Azure. If Microsoft beats that number, though, there's your signal. All that AI activity on Azure reignited growth after a couple years of declines. Now, of course, everyone's curious about Copilot. That's the AI assistant that Microsoft started selling to big businesses last year, opened it up to more consumers this year. I would be very surprised

if we got some solid detailed numbers on Copilot, unless they're really crazy and impressive. But on the call, you're going to want to hang on to every word from CFO Amy Hood and what she says about Copilot momentum or sales. And of course, the guidance comes on the call as well. So don't wait for those initial results, Scott. The call is super important, too. All right, good heads up for us there. Steve Kovac, thank you. Now to Deirdre Bosa with what to watch out from Alphabet, which is, I guess, the don't forget about us report.

Yeah, a lot of the same things that Steve Kovac was just talking about. It's going to be cloud, and that is sort of involved in that is its AI proposition. But as we talked about earlier, Scott, Google still has to kind of prove something to Wall Street that it can create really cool generative AI products and monetize them, importantly. But it also has this kind of tailwind as well, Alphabet, because remember, we've been talking a lot about these rolling waves of layoffs to start the year. So investors are

going to want to know how that is trickling down to the bottom line. If there's going to be more on the way last year, Google actually reduced its workforce. So does that trend continue? And of course, that gets Wall Street excited because it means that this efficiency drive is continuing and maybe even meeting this AI productivity drive that we've been talking about. The last thing I would say is that cloud, as I touched on, is going to be really important because if you remember back to last quarter, it actually beat expectations, but that cloud revenue growth was a little soft and that just tanked the stock the next day. I will also say, though, that on a price to earnings, forward price to earnings basis, Alphabet is lower than some of the other magnificent

seven. It's at 23 times earnings. So there could be room, whereas expectations for some of the others, like a Microsoft and AMD, is sky high. Yep. All right, Deirdre, we'll look for you in overtime. Can't wait for these reports. Thank you very much. Our thanks to Steve Kovac, as I said, too. Let's bring in Ankur Crawford now. She's executive vice president and portfolio manager at Alger, which owns Microsoft and Alphabet. Also with us today, Meera Pandit of J.P. Morgan Asset Management and senior markets commentator Mike Santoli. We're going big because it's a big night. Ankur, I'll turn to you first because you said the firm owns Microsoft and Alphabet.

Is the bar real high? Depends. So Microsoft, I would say the bar has gotten higher through this quarter. You know, expectations as we went into this year was 27% for Azure. It's creeped up to 28 to 29%. Who knows if they can actually do that for Q4, but what we're looking for is the trajectory for Azure and how they expect it to ramp through the year. And I completely agree that we need to see them put us on the right path for both cloud, open AI, and co-pilot. We call this the most important evening for the markets in this young year because it feels like

it is. Look, these stocks are up a lot in a short period of time. Their market caps have exploded. Microsoft, now the most valuable company on earth because of that. That has to raise the bar in some respects. Well, it does. And, you know, part of me also feels like the reason you pay 33 times earnings for Microsoft is so that you don't have to worry that over a three-month period of time, the whole story has changed. So the whole story is not going to change. They're going to be in the right spot. I was just looking at the numbers. Don't ask why. But since its IPO, it's up 400,000 percent. Its total return since its IPO thirty eight years ago is six hundred seventy five thousand percent. So I'm not

going to say this is it three trillion dollars is the top in Microsoft. But in terms of being able to carry forward the narrative a little bit more and give us more to go on a little you know bring it bring the AI opportunity forward put it in

tangible terms- and say you know you don't feel silly for paying thirty three times earnings I agree that Alphabet has more to prove and therefore the potential opportunity is there to say progress on margins. We're really looking to, you know, raise the metabolism of the company a little bit more. And they have some kind of plausible, you know, I guess, creditable effort on the AI side so that they're not a net loser in that world.

Yeah. Microsoft, I mean, you could do a whole case study on the reinvention of a once stagnant company that has reinvented itself and now has this huge growth trajectory. Some are calling this the most important of all of the mega caps. Do you feel that way? It absolutely is. And, you know, you had mentioned that Microsoft trades at 33 times. I would counter that and say one of the biggest underestimated aspects to this whole AI trade is that AI will profoundly change

the earnings power of all of the technology enablers. And Microsoft is the dominant technology enabler in this mega cycle that we're about to experience. So, you know, I would bet that 33 times is actually a lot lower by the end of the year. Well, the numbers haven't gone up since September 30th either. I mean, the market's saying things are getting better or we think that the opportunity is nearer. So, yeah, I mean, obviously that's why you would bid it up here.

Because you think the numbers are not as high as they should be. The NVIDIA playbook, right? That's the extreme case. But it's the extreme case. But as the picture has gotten better, the valuation has come lower. Now, to Michael's point, Microsoft's 10-year historical average is more around 23. It's at 33-plus. Now, you still have to decide what valuation makes sense, despite all of the glowing story that surrounds

this, doesn't it, don't you? Well, of course, evaluation is always something that you need to take into account. But let's take, for instance, today that the street numbers for Microsoft are 14% revenue growth over the next three years. Again, we think that the earnings power for a business like Microsoft, because of this mega cycle that we're about to experience, is going to be significantly higher. So even if it's three, four points higher than the street, the impact that that has on earnings is much higher because the incremental margins produced by Microsoft are high. So you could be looking at a company that's, you know, double digit, 20 percent type earnings growth over the next three, four years, which gives it a very different earnings profile as you go forward.

I wouldn't I wouldn't disagree with that. But I do think you have to sort of get your head around the idea that 20 percent revenue growth for Microsoft is 50 billion dollars. Right. You have to pull in 50 billion dollars from somewhere else in the rest of the economy incrementally to have that kind of top-line growth, right? So I think that's when you start to run into, you know, how much more is there in terms of the total market. The laws of large numbers certainly apply, given where all of the expectations are. Merit, it's good to have you here, too.

This is our Super Bowl week in certain respects because of all that lies ahead. Can you put into perspective what really this week is going to mean for the markets starting with this evening? Sure. So if we start with this evening, one of the things that underpins our thesis that the rally is going to broaden out this year is earnings. Last year was very much a year of multiple expansion. This year, we expect some of that performance to really come from earnings. And if we look at earnings last year, at least how they're tracking for 2023, you see pretty much all of the profit growth essentially coming from the MAG7

relative to the rest of the market actually contracting from a profits perspective. Now, if you look at 2024 estimates to get up to that 12%, you have about a third of the earnings coming from the MAG7 and about two thirds coming from the rest of the market. Now, how feasible is that? Because it sounds like a bit of a better balance. But if you think about, you know, as you were mentioning some of the stats around Microsoft, the Mag Seven would have to produce about 20 percent returns growth. And think about last year being a bit of a recovery from 2022 plus AI enthusiasm.

To your point about the bar, it's high. It's possible that the MAG-7 can do that. But again, that's a large growth number. And then the rest of the S&P 500 has to do about 10%. Again, coming off of a down year, that is entirely possible. But I do think the risks overall from an earnings perspective, when you look at that 12% top line number, are to the downside. Doesn't mean we can't see growth. So that, again, underpins broadening out some exposure in portfolios.

And even with MAG7, again, you bring up Microsoft, and think about when we used to call them the fangs. And that was a different, slightly different constituency of stock. So even within those, we have to be active, and that's where earnings give us a bit of a picture. So if this is the biggest night of the year, then maybe tomorrow is, so so far the biggest day of the year when we hear from the Fed as well. Yeah, but there's also this, you know, it's no accident, I suppose, and maybe it plays into what you're talking about as to why there's been a return to quality in this early part of the year

when many thought there was going to be more broadening. But we've gone right back to the tried and true, the ones you can count on names, And that's in large part the MAG7. In some ways, it's a good thing because as you've seen some expectations around the Fed get moved out later in the year around cuts and smaller increments, and you've seen yields rise since the beginning of the year, that is a good thing to see that ultimately the market is still on the whole pretty resilient. But I think it's still early days. I mean, if you think about the dramatic Fed pivot from the end of last year, then all of a sudden you had the holidays and now we're still taking on more data. So I think that there's still some uncertainty about what the Fed will do this year, about the path of rates. And so people

do cling on to the stuff that worked last year. We have a bit of a recency bias there. But we need to remember that we've had very dramatic pendulum swings from 2021 performance to then what we saw in 2022 to 2023. And so, again, being a little bit balanced in portfolios is important because otherwise that's a lot of volatility for clients, even though the overall journey in a lot of these stocks is a good one in the long run. We do have to think about some of those year to year, month to month, week to week moves. Mira makes a good point. It's going to be hard for investors to get off that fix, so to speak, of just when any time this uncertainty comes or the road ahead for the Fed, you just go right

back to the trident. Well, and I mean, that is the favorable outcome. In other words, it's not as if it's, OK, we have to retreat in general from equities. And what's interesting is the way it's being treated as defense. So maybe people are overpaying for the comfort psychologically of that defense. I also think even though we had this everything all in rally in the final two months of last year and small caps ripped and low quality ripped and all the old speculative stuff went along with it and we have some backsliding this year. It's not as if it's been as narrow as it was like in the last summer. So far this year, you're still seeing equal weighted consumer discretionary hanging there near the highs. Equal weighted industrials are doing OK. So it's still

not been, you know, a completely either or super narrow market the way we had before. The small caps, unimpressive. They're kind of stuck at the top end of the range they've been at for two years. But aside from that, the much smaller companies, yeah, I still think it's a little more of a nuanced picture this year than just seven stocks. Do you feel as though, Ankur, for Alphabet, for example, as we get down to ground level again on one of these companies that's going to be reporting tonight, is in fact the prove it story more so than the Microsoft? Are you more concerned about Alphabet going into tonight or not?

I think the market is more concerned about Alphabet. It's much more controversial as part of the MagSix, may I call it. Oh, you've taken Tesla out. Yeah, I took Tesla out. I know where you're going with that. So with Google, I think what we're looking for here is, are they showing some cost discipline? We think that the digital ad market is entering 2024 on a solid footing.

You know, I'm going to quote CRM, head of data cloud, who said 2023 was the year of being measured. Well, 2024 is the year of optimism. And we're seeing that not only in enterprise, but also for these ad markets. And in this case, all boats are going to rise with Meta and Google. Well, see, that's a good point. But I think that makes the potential story a little bit more difficult, too. So many boats have risen with these select yachts, brought all these things into the harbor with them,

thinking that they're all going to just eventually be the same. Not every AI story is created equal. You may learn that this week, Mira, that these stocks have been largely trading as groups with some relative divergence here and there. Maybe this is the week that separates that. Well, this is why valuations matter so much, because if you think about, one, at an index level, we're surpassing those all-time highs that we achieved January 2022. But if you think about one at an index level, we're surpassing those all time highs that we achieved January 2022. But if you look at the valuations last time we were at all time highs, it was about twenty one point four X on the S&P 500. Now it's about 20 X. So still a little bit

rich, but we've grown into that a little bit more. But if you take out the top 10 stocks, we're at about 18 and a half X, higher than long-term averages, but nonetheless, that's where valuations start to separate things, and that's where we pay attention to areas that could be vulnerable to correction. Do you think this is the week that we get finally this breakup of this group and we start scrutinizing these more individual? Well, Apple, for example, has been doing nothing this year. And now we have these reports of this potential iPhone shipment cut because of structural issues that, according to an analyst over in Asia, move the stock, move the Nasdaq and sort of had things a little unsettled today. And Amazon, you know, has often

had a mind of its own for a year and a half. It really sat things out. I mean, you know, from the peak of the of the lockdown. So I do think the most bullish thing would be if these six stocks, you know, each go their own way and they net out to nothing. And then we can get past it and say, if earnings in general are going to go in the positive direction, if the Fed's next move is cut, no matter when or how much, the market can probably, you know, deal with a little bit of a wobble. And the first pullback probably won't be the big one. That's the way I would think about it after the run we've had. Oh, thank goodness the Fed is going to come this week, too, right? That's the other variable we have to think of. What about this point that Mike makes? OK, so you get these out of the way and maybe the forces of the Fed in this new trajectory for where their policy is going to be is enough to offset any upset from the mega caps. What do you think? I think we're still going

to see some upset regardless, just because the market this year has been is on track to be a little bit more normal. And last year was so subdued in terms of volatility. So I don't think we should also get too nervous about the volatility we do see in markets because it's kind of getting back to normal. Rate volatility was extreme last year, but again, market volatility low. So I don't think we should be too deterred by the fits and starts that happened this year. I also don't think we should hang our hat on rate cuts, because even if we got the most optimistic of scenarios on rate cuts in an absence of a recession, that's still going to keep us in relatively restrictive territory. So something that we need to keep in mind. So I would say that, again, we're kind of heading into a more

normal environment where there are a balance of risks, both positive and negative, that we have to react to as investors. And I think in the last several years, we've gotten so hooked on the upside and the potential huge catalysts, where slow and steady is a more realistic expectation going forward. You think March is too soon to expect the first cut? And if so, when do you think it happens? How many do you think we get? I think March is a little soon. It's probably more May, June, just because of some of the hotter data that we've gotten. Now, that being said, I don't necessarily think sticky growth needs to mean sticky inflation, but I do think the Fed wants confirmation that the inflation path is headed to where they want to go. So I think a little bit more economic data would help support that. We've also seen a lot of

easing in financial conditions. We could start to see them fold in QT and want to ease that a little bit. So if you put all of that together, they don't perhaps need to do as many rate hikes as the market thinks. And we would be, again, a little bit more biased towards their view of 75 basis points, just slow and steady to make sure that inflation doesn't reignite, which is not our base case. Yeah. Ankur, how much so-called confirmation, to use the same word that Mira did, do you think we need this week from Powell that something's going to happen soon enough? I think I agree with Mira that they're not going to cut in March, that they're going to push it out further. It may

cause the market to get a little jittery because I think people, there's a 41% chance that there's going to be a cut in March. Expectations have come down, right? Expectations have come down. This was like a given and now it's anything but. Right. And I think it would be the wrong move to cut in March. So I would like to hear him say confirmation that it will be later because I actually think

it's a negative if he starts to cut in March because it could reignite inflation. Do you agree with that? Do you think it matters what Powell says about a timeline or a roadmap? I don't think we're going to sit around here. I don't think that we can have a solid opinion about what the answer is in terms of when because there's no way they know. I think they want to take full advantage of the next seven weeks of data and they want to see how things develop from there. They're hoping they have maybe the cover to perhaps go in March if they feel like, you know, the inflation really has downside momentum. But I don't think I'm not that fixated. As you said, we were 90 percent for a cut in March in December. A month and a half later, we're 40 percent and stocks are up and, you know, spreads are tight and everything looks fine in the markets for now. Which points to the, Mira, idea that as long as we know that the next move from the Fed is likely to be a cut,

it doesn't matter when or how much or how many. It's the don't fight the Fed mantra. At least we think we know where the path is and the path is good enough to get us started down it. As long as they're not cutting because they're worried about economic growth and because we're in a recession. Of course, they're cutting for the right reasons. They're cutting for the right reasons. Look, it is overall a supportive macro environment.

We think this year we do achieve trend-like growth. We do think inflation gets closer to the Fed's 2% target. We avoid a recession. The Fed is able to normalize in the absence of a recession and just bring policy to a somewhat still restrictive but reasonable stance. So overall, that should be a reasonable setup for the markets. And therefore, we're pretty constructive. Are you more, so you're a little more constructive, it sounds,

than what your quote unquote house view would tend to be of late. Some of the strategists there seem to be rather negative on the outlook for stocks. Is that fair to say? I think that's fair to say. And I think from our perspective, again, given a pretty benign macroeconomic backdrop, some general recovery in earnings, a broadening out of the earnings story, maybe we don't get the 12 percent growth, but still seeing reasonable earnings growth should be a good environment for stocks overall. I'll let you have the last word on your overall outlook for what this market's going to do this year. Yeah, it's interesting.

I think what we've seen in the first month, it's not repeatable every month. And so do we pause a little while for the earnings to catch up and for us to get a little bit more confidence in the growth? I think the market's higher at the end of the year. It's going to be an exciting few days. Glad that you could all set it up with us. Merit, thank you. Ankur, it's good to see you. Michael, I'll see you in the market zone as well.

That's Mike Santoli. Let's send it over to Kate Rooney now for a look at the biggest names moving into the close. Kate. Hey there, Scott. Yeah, I'll start with General Motors shares higher today after a surprisingly optimistic outlook. The automaker forecasting strong guidance for this year, looking for adjusted earnings per share up about 11 to 23 percent from last year. GM posted top and bottom line beats in its Q4 earnings report. And then we got Marathon Petroleum hitting a 52-week high today after topping expectations on the top and bottom lines. In its own quarterly report, operating income was strong, came out ahead of what the street was expecting, but declined from the comparable quarter last year.

Shares are up about 31 percent in the past year or so. Scott, back to you. All right, Kate. Appreciate that. That's Kate Rooney. We're just getting started here on Closing Bell. Up next, navigating market headwinds. T. Rowe Price's Sebastian Page is back. He's flagging his top risk for 2024 and what it might mean for stocks in the months ahead.

He'll join me right here at Post 9 just after the break. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. All right. Welcome back. We are watching the markets closely today. The Dow is getting a boost. The Nasdaq is lagging all that ahead of those big earnings tonight. Tomorrow's decision from the Fed, of course, is critical as well. My next guest says while inflation is coming down, the risk is to the upside and that that is his top risk for this year. Let's bring in Sebastian Page of T. Rowe Price. Welcome back. Thank you. Thanks for having me. We still think that's that's an upside risk. I mean, it's trending in the opposite direction. Why doesn't that give you comfort that it's going to continue that way? Yeah, Scott, it's trending down and housing is building in a disinflationary trend. But I do

think the risk is to the upside. I'm not talking about nine, 10 percent like we had. But I look at the Red Sea shipping a container from Shanghai to New York. the cost of doing that has just doubled in about four weeks. Wage growth is at 5%, Atlanta wage tracker. Our research platform is bullish on energy stocks. So I put it all together and yeah, it's coming down. And by the way, house prices up for nine months in a row at a pace of about 9% annualized. So at some point, that lag effect turns into a positive contributor. I'll give you another number that maybe trumps everything, and that's 49.27, because that's where the S&P currently trades. And it's at an all-time high, and the market's looking beyond all that.

Why aren't you? So inflation generally, historically, has been good for earnings, right? So when you get positive inflation surprises, companies have pricing power. It's not really intuitive, but inflation coming down real fast could actually hurt corporate earnings. So I wouldn't equate necessarily increased or unexpected inflation pressures with automatically a disappointment for markets. Markets right now are looking at earnings. They're looking generally at rates coming down. And really, you know, Scott, we've talked about it, the blob of money.

The blob of money is still out there. But how long are we going to be fixated on these long and variable lags, which just may not show up? Don't we at some point as investors have to say, you know what, maybe we're wrong because this time is in fact different. The economy and the trajectory of inflation are screaming to you in some respects that things are actually good. You know what I want? I want you to listen to what Ken Griffin of Citadel said today to our Leslie Picker down in Miami, because it's so

relevant to our conversation. We can kick it on the other side. Here's Ken Griffin. We do look like we have put some of the economic anxiety of Q4 behind us. Good payroll numbers, good GDP growth, and most importantly, inflation is moderating at a pace that's frankly better than the market anticipated. We may get Goldilocks. We may get a soft landing or even no landing. We may be looking at a moment in time where inflation this year is low twos. The Fed can start to cut rates come this summer. And we will see unemployment touch up a little bit. But the overall economy looks pretty damn good right now.

What do you say? It looks good. Look at what the forecast was at the beginning of 2023. Basically, zero growth, 0.3%. Look what we got. 0.3% forecast, 2.5%, 3% realized growth. So growth continues to surprise on the upside. Scott, we're having that debate in our asset allocation committee.

We're right now enthusiastically neutral between stocks and bonds, fully invested at our strategic weights. The bears are still talking on my committee about the long and variable lags. And it's, you know, winter is coming. The debt maturity wall is coming. That's the argument. Winter's coming. Then maybe the bears need to go into hibernation because they've been getting run over by a market that just doesn't want to hear

it anymore, that this bear story is tired and it's old. And you heard Ken Griffin there, who's pretty damn good at managing the money of Citadel and running that firm to have returns that are unlike most others to suggest that maybe it's just good. Yeah, and I think I agree. And it comes down to the consumer and the strength of the consumer. And what's interesting is going on right now with the consumer is that their wages are growing. People's wages are growing four or five percent.

And as inflation is coming down to two percent, your income relative to inflation is growing. And so that will give continued strength to the consumer and the employment market. I don't agree with economists that keep saying that we're seeing cracks, that the labor market is cracking. I don't see it. You know, just follow the data and the labor market is still very strong. Why aren't you overweight U.S. equities then?

I think it comes down to valuation. The equity risk premium is as compressed as it's been since 2007. Bond yields have come up, which makes bonds more interesting. Cash at 4 or 5 percent, that's going to come down. But if you balance your portfolio, I think now's not the time to be a hero and swing for the fences when a magnificent seven is up 107 percent in 2023. We are long the broadening of the market. We're putting some money to work in value stocks, putting some money to work in small cap stocks. But overall, Scott, this is this this is this environment where now's not the time to be a hero. There's a statistical study that says that

this is a real academic study, that soccer goalies do better if they stay in the middle instead of jumping from the right to the left. Three months ago, not necessarily you specifically, but the Bears then were like, well, this is not the time to be a hero because this isn't real to begin with. This is just another bear market rally. The long and variable lags are going to show up, and I'll show you, and yet the bears are being shown the door. I don't think so yet. I think you'll still hear the bears loud and clear because the debt maturity wall is only coming, right? So think about mortgage rates. They're coming down. That's going to help. But the average mortgage in the U.S. is at 4%.

The quoted mortgage rate is at 7%, 8%. Why? Because people have long mortgage rates. You can use the same analogy with corporate debt. Corporate debt has been extended. So all of this has just pushed the maturity wall. Now, if you want to get a little bit scared and give the bears a little bit of food, you talk about commercial real estate. They've been talking about that for 12 months.

Yes, but it's rolling and it's happening. I feel like you want me to give the bear argument. I'm giving you the bear argument. I don't want you to give anything. I think you continue to give the bear argument or at least cite the bear argument. And I'm just simply suggesting, and by the way, I'm not trying to give the bull argument. The market is. The market speaks louder than words, speaks louder than me. The market is suggesting that it believes the soft landing. It believes the Fed cut story. It believes the trajectory of inflation is lower and it believes that the tide has turned. It believes what Ken Griffin's saying. I agree with that statement. And the VIX volatility is at 13.

Fed funds are pricing six rate cuts. And corporate earnings are expected to grow at 10%, 11%. We're in a bit of an everything is awesome sort of complacent valuation environment. Again, I go back to the equity risk premium being really compressed going back to 2007. So I'm with you. Like the market is crushing the bears and has been crushing the bears. But that has led to elevated valuations. So you just balance it out. For a select group of stocks. Right. You know, the argument as well of, well, if you take the MAG7 out, the market's not as expensive as it would otherwise seem to be. Yeah. And in fact, if you look at the MSCI All-Country World Index,

this has emerging market stocks, small cap stocks, large cap stocks, the whole global stock market, 19.7 trailing PE, historical average 19.5. That's kind of fairly priced. And that kind of explains why we're at neutral between stocks and bonds. Because remember, bond yields are pretty attractive right now. We're going to get 8%, 9% on high yield and pretty decent yield and investment grade as well, despite having compressed spreads. So, Scott, this is an environment where the market is crushing the bears, but it's crushed the bears so much that it's priced in. You know, there's complacency, I think, a little bit. All right. We shall see. That's what makes a market, and that's what makes these debates so fascinating.

I appreciate your time very much. Thank you. Especially here at Post 9, Sebastian Page. Up next, AMD results hitting at the top of the hour. Don't forget about that one in overtime. Starship analyst Stacey Raskin joins me with a rundown of what he's watching from that report. Closing bell is coming right back. All right, welcome back.

AMD set to report earnings top of the hour in overtime. But will those results be able to justify the near 80 percent rally in AMD shares over the past three months? Let's ask Bernstein Stacey Raskin, one of the top chip analysts on the street. Welcome back. I take it your answer is no. You call this the most expensive of all of the AI stories by a wide margin. It is. So it's on a forward basis, it's 45 times earnings. You know, NVIDIA is 30 or 31. Intel's 32 even. So, I mean, and it is. And I'd say expectations, you know, you talked about the stock up a lot over the last three months. Expectations over the last three months are clearly up a ton as well. I think the company did something smart.

And by the way, all that matters on this print really is the AI number, right? They gave a forecast for it last quarter. They said they think they'll do more than $2 billion this year. I'd say the expectations are for considerably more than that. And that really, I think, is going to be what determines what the stock does, is like, how do they construct, you know, the trajectory for that, like, path as we go through the year? How much more is it better be more than $2 billion, but how much more is it over what timeframe? When does it hit? And how can how can they you know kind of present that um potentially in the wake of a core business that by the way may not be doing as well as might be hoped especially given intel's

results last week so that'll be what people looking for it's all about that ai number i mean this is a stock that really seems to be benefiting from the NVIDIA Halo. I think that's fair to say. However, I was reading a note, and I want your take on this. When you look at what the projections are of AMD's new AI chip relative to NVIDIA in, let's say, 2025, we're talking apples and oranges. The projections I saw, 800,000 units of AMD's chip relative to 3.2 million for NVIDIA. What are we to make of that? And by the way, that would still be a relatively sizable market share. I mean, it took them, you know, I don't know, seven or eight years to get to a share that would be on that order in CPUs.

And that was against a competitor that, you know, had fallen down. NVIDIA hasn't done that yet. So we'll see. But I've said this, I think, on this show before. This is one reason people are in AMD because no matter what they do, if they do $2 billion this year, if they do $4 billion or $6 billion or whatever, if NVIDIA does $60 billion, that will be viewed as very disappointing. It's a rounding error is the phrase that I use. It's very small in the context of the overall size, potential size of this market. Now, that can be attractive because like A&B doesn't necessarily have to do 60 billion dollars at least right away. And maybe they'll be happy with six. But yes, like in the grand scheme of things, I mean, they're going to be,

you know, it's a second source and probably not a big one relative to where NVIDIA probably goes if this market really takes off. It's NVIDIA's game to lose. At this point, NVIDIA is not showing any signs that they're losing. It's really interesting when I look at, you know, I get your market perform rating because the stock has ripped so much. Is this correct that your price target on AMD is 120, which is $50 lower than where it is now? And how do we rectify that? Well, so look, I've said this here before. It's also don't don't read too much into price targets at any given moment. We actually took the target up on the beginning of the year. The stock has ripped. Right. I'm not in the habit of taking, you know, adjusting targets and everything on a daily basis. Most

of the people on the sell side are not. Expectations have ripped materially in the habit of adjusting targets and everything on a daily basis, most of the people on the sell side are not. Expectations have ripped materially in the last several weeks, between the beginning of the year and into the print. We'll see what is justified, I guess, after they report tonight. But some of that is just lag. I wouldn't read too much into it. No, I get you. But lastly, you don't look at something like, I know it's a bigger step to downgrade a name, but on valuation basis, are you close to a valuation downgrade on AMD? And could tonight be the tipping point?

So like, we talked about this last time, like we downgraded it a year ago. And the call at that, was in January last year. The call at that point was gross margins and earnings are far too high. Absolutely true. They miss numbers every single quarter. And yet the stock more than doubled. And why was it?

That was because the AI story was really able to kind of take hold. It's only been a narrative. They haven't really seen any dollars yet. Like, well, this will be the first quarter we see something material in the numbers. There's a very possible scenario where numbers themselves continue to miss and yet they keep that ai dream alive like i understand why the stock has been working at 45 or 50 times earnings like i have a hard time like getting behind that it's a hard call to make but i understand tactically why it's been working i mean sure i'm sure i mean look, I think we all do. That's the great conundrum here of these stocks that continue to work. And

at some point, you've got to, you know, live up to the hype. We'll see if they do. I appreciate your time so very much, Stace. Thank you very much. That's Stacey Raskin. I should let you know as well that AMD CEO Lisa Su is going to be on squawk on the street. That's tomorrow morning at 930 on the other side of the earnings. So we're looking forward to that, too. Up next, we're tracking the biggest movers as we head into the close. Kate Rooney is standing by once again with that. Hey, Kate. Hey, Scott. So a couple of bleak forecasts weighing on two companies today. You got one delivery giant trying to cut costs and then an appliance maker also struggling to keep costs in check. We're going to tell you who we're talking about coming up next.

We're less than 15 from the close. Let's get back to Kate Rooney now for a look at the stock she's watching. Kate. Hey, Scott. Let's start with UPS. Shares tanked after missing revenue expectations and putting out a bleak forecast for the year. It's looking to cut a billion dollars in cost as it comes off what executives described as a difficult and disappointing year. UPS is cutting 12,000 jobs. As part of that effort to right-size the company, it did top profit expectations and upped its dividend by a penny. And then you've got Whirlpool. Shares there lower after giving its own disappointing forecast for the full year

on sales and profit specifically. And the appliance maker has been struggling to keep costs in check. And executives say the Red Sea attacks will now start to impact its European business. Guy, back over to you. All right, Kate, appreciate that. Kate Rooney still to come. Brewing up big gains, Starbucks among the names reporting in overtime as well. We'll give you a breakdown of what to look for when Closing Bell comes right back.

Coming up next, your big tech setup and so much more microsoft and alphabet the first of the mega caps to report earnings those numbers hitting the tape top of the hour we'll tell you what to watch for what's at stake there's a lot after the break we'll take you inside the market zone all right we're in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, what he's watching for these big earnings after the bell. It's Alphabet, it's Microsoft, it's AMD, and others. Speaking of others, Kay Rogers with what to expect from Starbucks when it releases its results in overtime. Mike, I turn to you. We didn't get to it at the very top of the show. Stacey Raskin calls AMD, which is up 80 percent in three months, the most expensive of

the AI plays by far. Maybe that's the one to watch to see what happens when they report. Well, that's the one that I do think is farthest out on a limb. Now, it's also one of those that really gets the benefit of the doubt from the street. People just love the momentum. They love the management. They love the story. They love they're coming from a near zero base on AI. So I agree with that. Now, in terms of market impact, index impact, it's the rest of them that I think is more crucial.

You know, the valuations are demanding, as we've been saying. You can't say it's a layup in terms of them satisfying the street. But if the guidance is positive, the stocks will be okay. I mean, I think that's basically the way it comes. But, I mean, at some point, we're going to learn. Like, look, I said the halo effect with Stacy from NVIDIA has benefited so many. Yeah. At some point, we have to learn who's legit.

I'm not saying they're not legit. Right. But monetization's legit in a reasonable period of time versus the pretenders who have just been lifted by the great ones. But see, I think that's why AMD is just the plaything of the AI speculators, because it's coming off such a low base. It's not a massive revenue chunk that they need to swallow up to look like they're having fast progress here. So we might get it might be a trap at this point, up 80%. Obviously, it's been a momentum move. But unlike Nvidia, which added $800 billion in market cap last year and everybody figured it out, this is a little bit of a story where I think it can swing a little

more wildly around a positive trend. Pretty amazing that both Microsoft and Alphabet come out on the same night. So you're going to hear what one, you're going to get all the reasons why one is over $3 trillion in market cap and may get some of the reasons as to why the other one is perceived to have missed something. Is a mere $1.7 trillion or whatever it is. But you have to believe that, you know, that story that Alphabet is going to try and tell tonight is that, hey, we're here, we're here to win, and don't call us second place because that's not how we view ourselves. No, that's right. And we're going to tell you all the reasons why we're not.

I mean, the difficulty with Alphabet has always been that its core original business is the most profitable thing in history of capitalism. And therefore, anything else they do, it feels like it's maybe they don't have as good a shot there, maybe it's dilutive to the private picture. But they can talk their way around it. It's a less demanding valuation. On many nights, you know, Kate Rogers, Starbucks would get a lot of oxygen. Now, it may be crowded out of the room a little bit, but nonetheless, it's important. What do we

expect? Big, important consumer names, Scott. So Starbucks, as you mentioned, set to report earnings for the first quarter after the closing bell today. The stock was down over 3 percent in 2023. Analysts are expecting EPS of 93 cents on revenues of $9.58 billion for this quarter. Same-store sales, of course, will be the key metric to watch. Global comps estimated to climb 7.2%. North America comps estimated up 5.8%. And international comps estimated up 13.2%. That's according to FactSet. Analysts are warning about some potential softness in the company's sales trends for this quarter. First up, weather, of course, in the U.S. has been noted by Stiefel and Piper Sandler. Stiefel also projects a potential impact from consumer boycotts at licensed stores in several Middle Eastern markets.

Same-store sales in China. Starbucks' second home market will also be in focus as well, with both consumer spending and local competition from players like Luckin on the radar. Back over to you. All right. We'll see what happens. Kate Rogers, can't wait. Thank you very much for that report. You know, Mike, just going to get another good inside look at what's happening in China or in some respects, what isn't happening? For sure. You know, I wonder if the street is kind of diminished its expectations for what Starbucks can deliver out of that market. You're seeing the rethink happening with Apple. So we'll see. I mean, it's a sort of a less challenging valuation on Starbucks than it has been in a while. And domestic comps could be

really the thing that makes or breaks it. All right. So let's look ahead then to tomorrow, the other big event, Fed meeting. What do you want to say about it? What the market is ramped up about and how you think it's all going to play out? I mean, I think that if they just ratify the market's understanding of their framework that says policy is more restrictive than we need it to be right now, the numbers are going in our favor, both on economic resilience and on inflation. And we can be patient in creating these peacetime rate cuts slowly down the road. Probably OK from there. Again, I think a lot of things are culminating in the same week. We've had a huge move in the market of 20 percent in three months. So you can't

take for granted that we're going to rally off of that. It's going to be exciting and it's going to be exciting in a matter of minutes. Microsoft, Alphabet, AMD, put your seatbelts on, grab your shoulder straps, and let's send it into overtime with Morgan and John.