Closing Bell - Closing Bell: Nvidia Probe, iPhone Revenue & The Mag 7 Trade 12/9/24

Episode Date: December 9, 2024

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

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 Apple's amazing run. That stock hitting an all-time high today. And coming up, Morgan Stanley's Eric Woodring will tell us where shares can go from here. And most importantly, why? With that stock on the run, in the meantime, the scorecard was 60 minutes to go and regulation looks like this. Mostly red day to day, as you see. However, Amazon, Alphabet, Microsoft, there's some of the other mega cap names that are green. All three of those are some big give back for recent high flyers like Applovin and Palantir. We're watching those, of course. Sector wise, materials and energy are

leading after more stimulus news from China elsewhere, mostly red, too. It does take us to our talk of the tape, the record run as some key events loom large over the next couple of weeks. Fed meeting got some inflation large over the next couple of weeks. Fed meeting got some inflation reports over the next couple of days. Dan Greenhouse is with us, chief strategist for Solus Alternative Asset Management, live at Post 9. Welcome back. Thank you, sir. Feel pretty good about where we are. It's hard not to. I mean, it's a good year for for most sectors. It's a good year for most cap sizes is a good year for most asset classes.

It's I don't know why you wouldn't feel pretty good. I know. But therein lies one of the issues people say everybody is now too positive. Right. There is on the doorstep of euphoria and it's knocking pretty hard. Are we there close? Not at all. Listen, I don't think we're on the doorstep of euphoria, but I think there is my view for the better part of a year or two now has just been let's just acknowledge that things are going pretty well. Corporate profits are doing okay. The economy's holding up. The worries about the consumer consistently have proven false. And in that type of environment, the bias for equities is higher. And then you layer on top of that just the idiosyncratic strength in the AI story and the mega cap tech stocks. I don't think we're on the doorstep of

euphoria now. I mean, Evercore, I decided today agrees. They say it's not extreme enough. Like valuations are stretched. A lot of people think they're stretched. Are they too much? Basically, they suggest not enough yet, given the fact that the Fed's cutting and the economy strong. Yeah, listen, the only time you really know that valuations are stretched is in the benefit

of hindsight when it's too late, when it's too late. Listen, is 22 times forward earnings high? Sure, but it's not as high as 24 or 26 times earnings. And until you go back down to 15, 18 times earnings, you can't look and say that's too elevated. And my point has just simply been, for the bulk of the year, why should tomorrow not look like today and yesterday?

And if the fundamentals behind the AI story are in place, and they still are, the economy is continuing to do well, and profit growth is expanding out, I just don't know why. Valuation is not a market-timing tool, as every strategist will tell you. So given what I told you is kind of the backdrop, you know, new administration, you've got Feds cutting, economy remains strong, what does that mean for where we can go next year?

I got a 7,100 price target today from Oppie. That sound reasonable? Yeah, I can get you to 7,000 pretty easy. If you have a perfectly normal December, and we're halfway through the month already, so this is less cool than it would have been two weeks ago. Well, it's seasonally strong to begin with. It's seasonally strong to begin with. If you have a perfectly normal December, you're going to get to call it 6,200 by the end of the year. And then if you have the 10% to 15% earnings growth that's likely next year, or I should say forecast next year, that gets you up to 7,000 right there. Now,

obviously, it's a little more complicated than that. But no, I don't think 7,000 is a bit of a stretch. And again, we're talking a lot about the rotation. The bias is higher. What do I do in that type of an environment? Is MAG-7 going to continue to lead? My argument has been that there's plenty of other stories going on here beyond MAG-7. And you can see that in the equal weight, the mid caps, etc. I mean, is 7000 a kind of baseline look or is that a everything has to go right or a lot has to go right to get there? Well, listen, I know for some strategists on the street, it is the the bull case is 7000. I think I'd probably some strategists on the street, it is the bull case is 7,000. I think I'd probably put myself closer to the camp that thinks it's more of a base case.

Wow. But you say, wow, but again, 10% next year to 11% next year, not particularly off the charts. If I told you we were going to be up another 25 or 30%, then maybe, wow. But I don't think 10 percent on top of what we've already experienced is. Let me again just be clear here. The Mag 7 is doing great. The net income growth for NVIDIA, 50 percent. For most of those names, Oracle, Avago. Avago is a little better, I think. 10 to 15 to 20 percent, let's say. Netflix is in that camp as well. But listen, you've got Walmart and Costco doing exceedingly well. You've got the demise of New York City office. Take a look at the charts of SL Green and Renato.

There's all these different stories to which I can point. And then you layer on top of it the rebound in the DocuSign, the Lululemons of the world that just put together pretty good quarters. The dollar stores, which are on the front lines of the tariff war, not terrible. There's plenty of different themes playing out here beyond Mag7 that support the idea for higher prices. So the broadening is going to continue in the new year because we have had a resurgence of mega cap lately. Certainly within the last few weeks to a month, the Nasdaq's led the way. I mean, at a time where people were trying to suggest, many,

that mega cap was going to take a little bit of a backseat and everything else in the market was going to be the thing that was going to carry the load. And admittedly, entering the year, I was one of those people. Now, granted, our job is to find non-Mag7 type investments, so I'm biased in that sense. But I certainly thought you would have a strong performance from non-Mag7 type names. But again, in light of what I just argued, I think you have had pretty good performance non-Mag7. Again, you've got mid caps up almost 20 percent, even small caps up 20 percent. The equal weight's doing exceedingly well. I mean, I'm talking more sort of recently. You know, just as there was like a building crescendo that the other parts

of the market, the equal weight and the Russell 2000 were going to be the places to really lean into for a while. They really haven't been. The Russell 2000 is flat over the last month. As I said, Nasdaq's up more than 2 percent. It's become a mega cap sort of driven and then a lot of high flying other stuff like the app lovins and the palantirs back to growth at even higher multiples. So those trades that were once written off have roared back in a big way since the election. Listen, we're longer term investors as a hedge fund, we're trying to find ideas that work over 1, 3, 5, even 10-year time horizons. So the short-term fluctuations in the debate

between value and growth don't really play into at least my and our investment thesis, if that's plural for thesis. I don't think it is, but we'll go with it. But listen, again, those narratives are playing out. And I don't even, to that point, I don't even think it's necessarily a bad thing. We'll go with it. But listen, again, those narratives are playing out. And I don't even, to that point, I don't even think it's necessarily a bad thing. I mean, AI is doing the bulk of the work here in terms of capital expenditures, in terms of the market.

But again, you don't have to be exposed to just NVIDIA. You've got Eaton and Vertiv and any number of other AI derivative as I've been talking about on air, imploring people that you just don't have to go to Avago and NVIDIA. There's all these other stories that are playing out. And again, to the point that you haven't had any suggestion from any of these companies, and you have not, that it's likely to cease. I don't know why that story doesn't continue into next year.

And real quick, before we go, you mentioned the new administration. Yeah. The M&A story today with Mondelez and Interpublic, this is going to continue to play out next year. And on the regulation side of things, throw up a chart of Live Nation, LYV.

That is a quintessential deregulation, or not deregulation, but lack of regulation. A longer term one, I apologize. Let's go back a year, let's say, to show you the type of improvement that the stock has had in and around the election. Well, there you go. There you do go. That's emblematic of the themes that I think are going to continue to play out next year, on top of all the, what I would argue are bullish, not super bullish, arguments that

we've already put forth. But I mean, if you put up private equity charts from the fall till now, post-election especially, you would see similar. Yeah, KKR, Aries, Apollo, which is going into the S&P. Listen, that's an M&A story. It's a private credit story. Now, listen, a lot of those valuations in there are not super attractive, although admittedly, there's not super attractive valuations everywhere. But listen, a lot of those names weren't in the S&P 500 and only recently have started to get added. So for a lot of investors that either willingly or not confine themselves to the S&P 500, KKR, Carlyle, Blue Owl, et cetera, getting added to the index is going to be a positive over time. All right. Let's bring in Stephanie Guild now of Robinhood and Marcy McGregor of Maryland Bank of America Private Bank. It's nice to have you both with us. Stephanie, I'll go to you first because you had a front row seat here to everything that Dan Greenhouse has had to say. Do you agree or

disagree? I agree for the most part. I think we're certainly in a market where mid caps and small caps should do better. And I actually think like valuations at 22 and a half times, that's over the next year's earnings. If you believe that earnings can continue to grow, the S&P is more like 19 and a half times for 2026 earnings. And that's right in line with the 10-year average. When you look a little below the service, like mid-cap and small-cap names, they're actually three to seven times below what you see for the longer term in terms of average valuations when you just look at 2026 earnings.

So if you believe earnings growth can continue, then I actually think the market is not super undervalued. I do think the more recent drive of those large cap growth names might also be related to the fact that the 10 year hasn't been rising as much. Sure. Yeah. That 10 year has come off the boil. Marcy, Dan suggested 7000 for the S&P next year is almost a baseline outlook. Not an everything has to go right outlook. You take issue with that? Well, we're closer to 6700. But if I look at this market, you know, we're teeing up a second year of 20 plus percent returns for the S&P. I do think clients need to temper our expectations a little bit. I think 2025 looks a lot more like a year with

stickier multiples and it tracks profit growth. But to be fair, we're forecasting about 12, 13 percent earnings growth next year. And I think that's a pretty healthy market. If you look under the hood, this market not only has some nice seasonal tailwinds, of course, as we go through the rest of this month and into January, but three quarters of the S&P is trading above its 200-day moving average. You're seeing discretionary and financials and utilities as leadership, barring this kind of narrowing theme we've seen over the last couple of weeks. I think that's temporary. I think next year is about a Fed that is still inching rates lower, an economy that is strong, profits that are growing from third quarter into next year, and broadening, I think you get all 11 sectors of the S&P

in positive EPS growth territory by spring. I think that's a really positive recipe, albeit maybe not as strong of a year as we saw in 2014. Sure, but if you're calling for, let's just say, roughly 10 percent next year, it would seem to me that you must think that some of the good feeling was pulled forward. I say that because if you go down the list of the things that would spur a good market rate cuts, tax cuts, earnings growth, like you suggested, is going to be good deregulation and an already strong economy, 10% in that environment that I just painted sounds light. So I think a lot of the tailwinds that drove the market and helped us all climb this wall of worry this year are still in place. But to your point, a lot of this is priced in. I think

we're going to have a shorter, shallower Fed easing cycle this go around than maybe we expected three or six months ago. I think when we look ahead to next year, maybe you get two more cuts. We've got to keep an eye on inflation. So markets may feel a little choppier. I think it's going to be less about the index level and more about this broadening theme. So mid-caps, small caps. You know, in a world where there's likely to be noise around trade policy and tariffs, small caps are the domestic producers- in an environment where deregulation

is starting to look more likely they can really benefit there and I think interest rates will be stable- you all mentioned a merger cycle that is underway here that will benefit big caps so. Things less about what the S. and P.

does I do see more opportunity in other sectors and other segments of the market. than just the index level. I will say the difference between Marcy's 6,700 and my ethereal 7,000 is like a good month. So I don't think it's whether it's 6,700 or 7,100 where I think Deutsche Bank lives. It's not that much of a difference. I mean, the bias is clearly higher. And to Marcy's point, in the third year, whether we're up 10% or 15%, whatever it is, in the third year, you're trying to figure out as an investor, are the themes that are working

going to continue working? And if not, where should I be otherwise? And I think the problem that a lot of investors are going to have is that AI theme is continuing to work. And so what we've seen for two quarters, four quarters, six quarters, eight quarters is anytime someone has come on, myself included at points, and said, well, let's look elsewhere. It's at the expense of just tremendous performance from these names that continue to have revenue growth and income growth, EPS growth, et cetera, that far exceeds the rest of the market. That, I think, is the struggle that's going to continue. Stephanie, you say you wouldn't be surprised if we had another 20% year. Now, maybe a lot of stuff has to go right for that to happen. I don't know. You tell me. I think, yeah, we definitely could.

But I don't know if it's going to be driven by, like, the top 10 stocks. I certainly believe that AI is a big driver of it. But I also think that there are a number of good stocks that are below that. And that's where I think you're going to see greater earnings growth. And if you look back at like Trump 1.0, small and mid-cap stocks did very well the first year until they put in the TCGA, JA. And so I wonder, like, it was really the tax cuts that helped those largest names. And so I wonder, like, can we go much lower than 21 percent? Does he get that done?

I know he's talking about 15 percent. That's the time where I could see, you know, maybe the S&P does go a lot higher, even maybe past the 7,000. But otherwise, I see a lot more benefit in some of the mid and small cap names. Real quick, I'll just say, no one on the street, I think, thinks you're getting even one penny of additional corporate tax cuts. Yeah, I agree. So if you were to get two percentage points, three percentage points, five percentage points of additional corporate tax cuts, that would be.

Trump has talked about taking it down to 15. Sure. We also have a deficit to deal with, so I don't know. He's talked about a lot of things. But I think the pushback on the Hill is going to be, you know, you can't have everything. And there's going to be costs for a number of different things. I just think corporate tax cuts, and I think most people think corporate tax cuts are going to fall by the wayside. Sure, but unless you think that they think, which many people suggest they do, you can grow your way out of a deficit problem.

Okay. I don't think that, but all right. I think the deficit's growing at the same speed. Yeah, listen, I don't want to get political, but you need to cut some spending. What about Marcy? I guess that points to risks that maybe, you know, if it's anticipated that these new policies are going to be inflationary, you have interest rates hovering higher than people suggested that they would be. That's a possible issue. And then you want to layer tariffs on top of that, which may be another cause of those rates remaining rather sticky. How much of a risk is that? Yeah, I think inflation is a risk that we have to acknowledge. You know, we know 87 percent of past inflationary periods see more than one peak. And there's often years of a lag between

the fact that inflation has plateaued basically for the last three months has me watching closely. You know, we get a CPI, of course, on Wednesday. Our view at B of A Global Research is that CPI can take down modestly in the data this month, enough for the Fed to cut. But I think as we start to look towards the end of 2025, we have to watch inflation as a risk, especially if it led to the Fed kind of reversing course. Gotta watch geopolitics, and then of course, anything that's gonna impact the profit cycle. That is the anchor of our equity overweight

is that corporate profits are growing and broadening. So anything that really rocks that outlook would be a huge risk to us. But I think we do have to acknowledge inflation as a risk after three months of the progress really slowing down. I mean, we are reminded yet again, you know, over the weekend of geopolitics, you can take tariffs out and retaliation out of the question. And then you still have uncertainty in the Middle East, power vacuum perhaps in Syria, Russia, Ukraine, doesn't feel like there's a settlement there anytime soon. Are we under

appreciating potential geopolitical risk? I don't think we're under appreciating it enough. Well, the market... Well, that came out wrong. I think we're over appreciating... whatever appreciation we're applying to Syria is over appreciating it. I mean, the market has had an incredible ability to really look beyond a lot of geopolitical risk, beyond, you know, the maybe headline risk here, there and whenever. But in the larger sense, the market has been incredibly resilient in that regard. I think that's right. I'm fond of telling investors in Solis' fund, there's not a lot of McDonaldcdonald's in the ukraine and and uh and

syria and so there's a limit to how much direct exposure the the u.s stock market's going to have especially when you've got the ai narrative in the case of ukraine obviously there's grain and commodity exports and we actually invest in a couple of companies that are ukraine adjacent so i don't want to say no business is being done there. But in the case of Syria, I think you'd be hard pressed to find much S&P 500 revenues or net income that's that's generated in that country. But you do have, Stephanie, because of the the possibility of more tariffs and then geopolitics on top of that and then uncertainty in China, for example, that whatever appetite there seem to be developing to invest outside the U.S. is starting to get more U.S.-centric again. Yeah, absolutely.

And I think part of that is the dollar. Like if you're going to go invest outside of the U.S., you have to remember what your returns are going to be back in dollars. And I think that's kind of been the thing, because if our interest rates stay sort of on the higher end and everybody else's economies are maybe slowing down a bit, their interest rates may come down, you're going to have a strong dollar and that's going to go against the returns that you may earn abroad.

But I think the oil price is where you've seen most of that conflict coming through. And that could affect consumers. Yeah, listen, if Iran gets involved, Syria doesn't have very much output, a couple hundred thousand barrels. If Iran becomes, and that's geopolitically, that's the big problem here that iran's losing its proxies in the region if for some reason the iranian regime were to fall or there'd be some sort of an attack more directly in iran that's a different story that's a couple million barrels

start everybody will leave it there marcy thanks so much will talk to you soon stephanie thank you and and thanks for being here at post nine as well let's get more now on in video the move in semis today with our seeming like i see my as well. Let's get more now on NVIDIA and the move in semis today with our Seema Modi. Hi, Seema. Hey, Scott, you touched on trade and geopolitics. Well, China's investigation into NVIDIA's anti-monopoly practices is widely seen by the street as a negotiating tactic. It comes one week after the U.S. Commerce Department hit Beijing with new export controls that takes aim at the broader semiconductor industry. The Council on Foreign Relations fellow David Sachs says by launching a probe into the most valuable company in the world,

China is signaling that it can inflict pain on the US and if President-elect Trump decides to levy tariffs on China. In terms of market share, China is an important market. It makes up less of Nvidia's total revenues today, which at one point were around 25%, Scott, now closer to around 10% to 12%. That's according to analyst estimates. Shares of Nvidia, along with other chip stocks, are trading lower today on this news, and worth noting, have underperformed the broader tech sector since the U.S. election, Scott. Thank you. That's Sima Modi. We're just getting started. Up next, swinging for the fences, the New York Mets signing superstar outfielder Juan Soto to the largest contract in professional sports history. We'll have a look at the staggering numbers behind that deal, whether more are on the way, what it means

for pro sports in general. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. MLB free agency starting off with a bang. Juan Soto agreeing to a record-setting 15-year $765 million deal with the New York Mets. Here to discuss is CNBC media and sports reporter Alex Sherman. It's good to have you back on what is an eye-popping deal like we knew it would be. I guess my first question to you is, what are you hearing from collective baseball about the reaction to this deal? I mean, I don't think it's much of a surprise because we've seen it coming for days, as you alluded to there, Scott, in terms of the sort of eye-popping nature of it. But what it does speak to is this growing imbalance between the haves and the have-nots in baseball, which, again, is not a new issue but it does tend to get more and more extreme as you see these huge contracts being doled out first to shohei otani from the dodgers a 700 million dollar deal and now juan soto at 765 million there are only a handful of clubs that can afford this and

then you sort of have the rest of the league and you do wonder is this right for baseball in fact it's something that i asked dodgers co-owner uh stan caston about a couple weeks ago take a listen to what he said because the dodgers are actually one of the abs and that abs and abs not what doesn't help that our revenue per game is 10 times that of a team on the bottom. It really isn't good for anyone. We have revenue sharing in our league, so we hope to close that gap. I think there are other ways to achieve that. We see a lot of examples in the other sports.

I'm not going to get into labor. That's not a thing that we talk about. But I believe that there are even better ways to maximize the benefit for teams and players than we have landed on yet. And I'm hoping that we make continued progress. So here you've got the president and a co-owner of the Dodgers who just won the World Series and is one of those teams that's able to compete at that level even he is saying i don't know that this is great for the game this is something that i talked to adam silver about the nba commissioner a few weeks ago too he says the data is crystal clear in the nba more parody better for fans better for the sport it's not something we've seen in major League Baseball for decades. Well, there's no salary cap in Major League Baseball as there is in other sports, and it's not likely to change despite what Kasten and some others may suggest.

Well, I guess that's the issue, right? So the collective bargaining agreement is coming up in 2026, and your point is well taken, Scott, which is, well, why isn't it likely to change? Because the players would have to allow a change. And there's no incentive at all for players and the player association to say, we don't like this because just take a look at the results. I mean, in fact, everyone else in other sports are looking at baseball and being like, man, I really like what they have going on here. I should get my kids to play baseball. They can cash in on these long-term guaranteed contracts. So this is why things have not changed in baseball for many

years. And it would have to be a probably sustained lockout driven by the owners and the league in order to cause a significant change. Let's talk about this contract specifically, because I think many assumed maybe that's the right word. Maybe it's not. Myself included, frankly, that there was going to be a tremendous amount of deferred money, just like there was for the Shohei Otani deal. that if this deal now sets the precedent like I thought the other one would, it further decreases the pie of potential owners who have that kind of cash now to pay these contracts in the here and now and not have a lot of this compensation deferred down the road. Steve Cohen, the Mets owner, told our Andrew Ross Sorkin that he felt like owning the Mets was almost a philanthropic gesture,

that it was his civic duty to own the Mets and to spend as much as possible to bring them a championship. Well, not every owner takes that tact, and a lot of ownership structures are different, as in all sports. Steve Cohen is a billionaire and is clearly willing to take on whatever cost is necessary to bring in players like Juan Soto. Most major league clubs are not set up that way, either by the personal choices of their ownership group or simply the structure of their ownership group in that they don't have that type of money to spend. So you're absolutely right. It's yet another example of how having no salary cap distinguishes Major League Baseball from other large professional sports in this country.

He's also thinking, you know, he must be about big picture, right? You get a Soto, your your gate goes up, tickets and the like, your sponsorship deal values go up, your ancillary media rights goes up. And then what else goes up? The valuation of your franchise goes up. Yeah, that's true. And look, the Mets are in a particular situation, again, sort of a haves and have-nots situation in Major League Baseball where they have a functional regional sports network. A lot of teams don't because they don't have the right eyeballs watching the games or because their team is owned by a conglomerate like Diamond Sports,

which has gone bankrupt. And that's due to the slowing number of people actually watching cable TV. So the reformation of the regional sports network model is also very much going to change the game in terms of how much money each of these teams brings in. But if you have a billionaire owner that's willing to spend whatever amount of money, even if it goes over all of those additional revenue streams that you just talked about, even if it's a money-losing venture for him, he's still willing to do what it takes. Yeah, that puts the Mets in a different category. Great news for Mets fans today.

But, you know, I do think the rest of the league is probably scratching its head a little bit, thinking, is this really the direction we want this sport to go in? Yeah, we'll see where it goes from here. They don't call it an arms race for nothing. Alex, thanks so much for your insight. I appreciate you. That's Alex Sherman joining us here. All right, coming up, we're tracking the biggest movers as we head into the close today. Seema Modi standing by once again with that. Hi, Seema. Scott, less than 30 minutes left in trade, and it is merger Monday with two new deals that are moving stocks in a big way. Full story coming up after this break. Before the closing bell, back to Seema Modi now for a look at the stocks as she's watching. Hi,

Seema. Hey, Scott, two major ad agencies planning to merge. Omnicom will acquire Interpublic. Interpublic in a stock for stock transaction. The deal, if approved by regulators, will create the largest ad agency in the world with a combined annual revenue of nearly $26 billion. Omnicom shares are down 10 percent, Interpublic down up around 5%. Hershey shares are climbing more than 12% after Bloomberg reported that Cadbury and Oreo maker Mondelez is making another attempt to buy the chocolate company. Hershey shares are on pace for their best day since June 2016, while Mondelez is falling down around 2%. And take a look at SolarEdge. That stock up about 12% after the solar energy company announced it has started shipping its USA edition home battery. SolarEdge said the product is designed to qualify for domestic content bonus credit

under the Inflation Reduction Act. Scott. All right, Seema. Thank you, Seema Modi. Coming up, Apple shares hitting a record high again today. One wireless company, though, is warning of a slow start to the upgrade cycle. Top analyst Eric Woodring lays out what he expects for the crucial holiday quarter, why Apple is still his top pick heading into 2025. Closing bells back after this. Apple investors banking on a strong iPhone holiday shopping season, but T-Mobile CEO warning of a slow start to the upgrade cycle.

Our own Steve Kovach joins us now with more. What are we learning here, Steve? Yeah, Scott, this is some comments coming from T-Mobile CEO Mike Seaver at a UPS conference earlier today that also sent T-Mobile shares much lower. He said device upgrade rate this quarter is, quote, pretty low. Also said expects a lot of the upgrade activity to happen in the back half of the quarter, presumably because people are doing their holiday shopping at that time. Now, normally this would send Apple shares lower, but they actually hit all-time highs today. And this comes as we've been talking so much on this program that the street's still trying to game out if Apple intelligence is driving device upgrades.

Today, by the way, we were expecting Chachabit to launch on the iPhone, but we got another beta version of the early software instead. Still expecting it soon. Apple, by the way, said ChachiBT will be on the iPhone by the end of the year. But still, the most important artificial intelligence features, those aren't coming until next year. That includes more Siri updates and the big one that everyone's watching for, third-party app support tying into Apple intelligence. Developers haven't even gotten their hands on that yet. And we won't really know until after this month for sure how well the iPhone 16 lineup is doing. But we've been here. I know you have Eric Woodring on right after this. We've been hearing so much commentary about how it seems a little bit muted right now

and whether or not this upgrade cycle is going to be sort of elongated instead of all coming at once, Scott. Appreciate you, Steve, for the report and the tease of our next guest. That's Steve Kovach joining us now. And joining me now is Eric Woodring of Morgan Stanley. He's the top analyst. Nice to see you again. Welcome back. Thank you, Scott. Good to be here. What do you make of what Sievert has said today and how Steve characterized it and how we should be thinking about this? Sure. You know, I do have iPhone revenue flat in the December quarter right now. And that obviously does not imply a big bump in what would normally be a very big holiday sales quarter. So I am largely, at least directionally, in agreement with Steve. Right. And why is that? Let's take a step back again.

Right now, only 30% of the installed base can get access to the most basic features of Apple Intelligence. 70% of the installed base don't have access to Apple Intelligence. That is somewhat the key feature to upgrade this year. So if you can't have that key feature, you are most likely going to delay your purchase. We did a smartphone survey about a month ago that said 50% of iPhone users that have decided not to upgrade this year decided not to upgrade, or I should say the lack of Apple intelligence availability played a factor in their lack of upgrade. So it goes back to Apple intelligence and AI. This is what consumers are looking for. 70% of them can't necessarily get it yet.

More of those advanced features are to come. We still think more of the AI-driven upgrades are in the future as opposed to during the holiday period. Let me throw something out there that might sound on its face completely wrong, if not crazy to think. The stock is up near 9% in a month. Oh, just about a month ago, Donald Trump was reelected. We're going to have Trump 2.0. Some has been made of how Tim Cook, maybe more so and if not better than some of the other tech CEOs, has made it a point to develop a

relationship and a good working relationship with the president the first time around. Apple has had some regulatory headwinds under the current administration, some more may be in the offing, who knows. Do you think any part of that stock's move since the election is because of a perceived good relationship between Mr. Cook, Mr. Trump, and what his administration might mean for Apple from a regulatory standpoint? I think there's a small part of it. I mean, I think your characterization of Tim Cook's relationship with Donald Trump is correct. Tim has done a magnificent job of balancing

the kind of geopolitical risk of she, Joe Biden, and President-elect Trump. And so we've seen historically that Apple has been willing to make some changes to their manufacturing base to appease the president-elect. We think that they'd be willing to do that again. And as a result, we think they'd perhaps be at less risk of tariffs in that sense. But from a pure regulatory standpoint, I think an anti-red tape pro-business government is generally perceived as good. I don't think that's specific to Tim Cook, Apple, or anything just within tech. That's broadly speaking, I think, how the market is looking at things. But when it comes to specific regulation with Apple, you know, there's two things that Apple is currently dealing with with the DOJ. One is the Google DOJ investigation that is proceeding through the remedies phase

right now. That, to me, is still the biggest risk that Apple faces. I'm not sure that a Trump administration is going to change that because the Trump administration is the one that started that investigation. Maybe they take off the worst case scenario, sure, but I don't think a lot changes there. The other regulatory investigation is the direct DOJ investigation against Apple. That's going to take some time to play out. That maybe is a little bit more at risk of getting thrown away by the incoming president-elect. Really hard to say what that might be as we stand here today. But again, it's not necessarily more less regulatory headwinds, so to speak.

I don't think that those really change. I think it's more the pro-business nature, or at least perception of the incoming government, coupled with the fact that Tim Cook does have a good relationship with Donald Trump. And so in the event there were negatives that they were exposed to, he could help them get away with skirting some of those tariffs, for example. But if you think that this is but a small part of the move, certainly I'm not suggesting it's accounting for all of it. It just sort of struck me that that was an interesting way to perhaps think about it. What would you attribute the largest part to why the stock has worked so well, even as we're talking about the upgrade cycle being so meh? Sure. So I think there's two factors. One is just the general market, right? We've seen a general market melt up

and I don't perceive to be or pretend to be the equity strategist here at Morgan Stanley. I leave that to Mike Wilson and his team. They do a great job. But I do think this melt-up has helped Apple, generally speaking. It's a higher-quality company. There's relative safety. There's also relative data found in Apple because it is tied to consumer spending. If you believe that consumers are going to spend more in the future, that's generally going to be good for Apple. The other factor, I think, is still related to this AI upgrade cycle and investors gaining conviction or wanting to gain conviction in the upgrade cycle next year.

I don't perceive that to be a fiscal year 25 catalyst from a numbers perspective. But historically, when you look back, Apple typically starts to outperform six to nine months ahead of a product cycle. We're about 10 months ahead of a product cycle right now. Could you potentially be seeing the market pulling forward that outperformance to invest in an AI upgrade cycle today simply because we know that's what's going to be one of the biggest features to drive upgrades next year? Theoretically, it's hard to say, but that's kind of the two different factors that I would bank on why we're seeing some outperformance here, market and pulling forward of that outperformance time period. I got you, Eric. Good to talk to you as always.

Look forward to the next one. That's Eric Woodring, Morgan Stanley today. Still ahead, we'll give you a setup ahead of Oracle earnings and overtime. That stock hitting a record high earlier today, having its best year since 99. We're going to run you through what to expect when those results hit the tape. We're back on the bell after this break. We're now in the closing bell market zone. CBC Senior Markets commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, two big earnings reports in OT. We are watching SEMA is following Oracle and Diana

Olick is tracking Toll Brothers for us. Michael, I'll turn to you first. Decidedly down day. For sure. Only one sector is green. Got some key data ahead and we'll look ahead in 10 days to a Fed meeting, too. That's really the catalysts that are in front of us. It pretty much is. You know, the historical playbook says that the first half of December actually is a bit of a pause, even in the context of a strong fourth quarter and ultimately usually a strong finish to the month. So this isn't that unusual. The average stock is down 1%, 2% on the month to date. So that's fitting into this idea that we priced in a lot. The trend is very strong. I think the volatility index now perking above 14 today. To me, it's because CPI on Wednesday is sort of the last known potential catalyst or changer of the narrative. You want to

maybe clench up ahead of that. and then just these high volatile situations that have reversed a little bit to the downside today they've come off the boil a lot of the real momentum names again doesn't change the overall picture but I feel like the market just needs to figure out if that's going to be a source of instability or it's just kind of you know people playing games around the air but there was no more money to go to stocks today it all went to juan soto so that's why we deserve a down day he got the big bag of the money all right sema uh oracle's had a huge run now the earnings have to live up to that yeah that's exactly right scott shares of oracle have run up on this idea that founder larry ellison can pivot

the company from old school software to one that is at the sort of forefront of artificial intelligence. Investors now want further proof that this transition is underway, which shares already up 80% this year, trading in record high territory. Ellison's AI ambitions span beyond data migration. The tech billionaire is building a mega data center with three small modular nuclear reactors that will produce over one gigawatt of energy and be able to run large complex AI models, all powered by NVIDIA's cutting edge chips, which he had begged CEO Jensen Wong for at a recent dinner alongside Elon Musk at Nobu in Palo Alto. Clarity on new customers, Scott, outside of OpenAI and Microsoft, that will also be of interest when

the company reports. All right. You'll tell us what happens and we will be watching. Seema, thank you very much. All right, Diana, Toll Brothers, talk to us. Yeah, Scott, Toll Brothers beat expectations in the last quarter and during that earnings call, it raised its full year guidance. This latest quarter might be a little bit harder because mortgage rates moved sharply higher again. During the fiscal fourth quarter, that's August through October, the average on the 30-year fix went from around 6.6%, fell a little bit, then shot up to over 7%. Toll, though, is, of course, the luxury builder,

so not as rate-dependent as some of the other builders. The average price of a toll home is just over a million dollars. The big gains in the stock market may have had a bigger impact to the upside than mortgage rates to the downside. Toll's also broadening its product lines, price points, and geographies, and it's increasing spec sales. So all of that could play into a strong quarter. Scott.

Diana, thank you. That's Diana Olek. Michael, I'll turn back to you. I'm just looking at some stocks that are down a bunch today. Coinbase down 9%. Applovin down 15%. Palantir down five. Palo Alto down four. Talk about a lot of stocks that have had a pretty good run. Yes. And quick and quick. The hot pockets, as I've been sometimes calling them. And again, you know, you had these

kind of micro themes that have taken off and sort of made its way into the discarded kind of boom-bust merchandise of 2021. I noticed the real-real was up 35% today. It's under a billion-dollar market cap. It's way below its 2021 highs. It got an upgrade. It had 20% short interest. So it's almost as if this market has been hunting for areas of stocks, high beta, low quality. Can it move fast?

Now, once you've done that for several weeks, as we've been doing, it kind of gets a little bit stretched and people feel like maybe it's time to take some off. I think that's all that's really going on in that part of the market. Bigger picture, again, it's trying to figure out if expectations are really growing a little bit too aggressive into next year. The consensus you were talking earlier, up 10%-ish is where the street is at. That's not crazy. The market almost never goes up 10% in a calendar year. But general bullishness, a tight consensus. And also, if you think that the mega names are not going to actually be the leaders, the math gets really hard. You're talking about 70% of the index outside the MAG7 is going to carry the S&P up 20 percent next year in the bullish case.

It just means as if you're benchmarking to some of the best market environments in history to say, yeah, we can match that. We can lift 20 percent off for 22 and a half times earnings. No problem. If you go from high beta and low quality to low beta, high quality, which has happened, that's why you get an apple. No doubt about it. Which hits a new all time high as we said today.

It's almost like there's parallel markets where there's the investors that are saying things look fine. I'm going to stick with the quality. I'm going to basically ride this good trend in the indexes. And then there's the trading community which is very, very overexcited. And it's just sort of again having fun at the margins. All right, we'll have moderate losses today across the board.

Red certainly for all three of the major markets.