Closing Bell - Closing Bell: Nvidia Surge & Obstacles to the Bullish Streak 2/23/24

Episode Date: February 23, 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 Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the run in stocks and why Tom Lee says there's a lot of gas left in the tank for this rally. And he's going to join us in just a few to make that case for you. In the meantime, your scorecard with 60 minutes to go in regulation looks like this. We are watching the Nasdaq over this final stretch. It is trying today to make a new closing high. Has a little bit of work to do, but as you've seen with the NASDAQ, things can happen in a hurry. $16,057 and change is the magic number there.

Seems like there's a new high for NVIDIA every day, and that's because it continues its own March higher. Take a look at it now. About $800 a share. $800, by the way, the magic number for N for Nvidia to stay over $2 trillion in market cap. The Dow and the S&P extending their milestones today as the market's momentum has continued to build for the week. And all of that takes us to our talk of the tape. Where best to position for the next bump in stocks if the bulls, in fact, are right and another one is upon us?

Let's ask Cameron Dawson, chief investment officer for New Edge Wealth, back with me at Post 9. It's good to see you again. Good to see you. We're going to have another leg higher. I mean, what's your assessment here? I said on halftime today, we got through the gauntlet this week of NVIDIA after everything else. And well, we were on the other side of that and things look pretty good. Yeah, I think it's respect the momentum and respect the trend. Momentum is certainly to the upside. Trend is certainly to the upside. That doesn't mean that we should be complacent and blindly chase everything. So I think that we're encouraged by the momentum, but we also want to remain very vigilant about things like positioning and sentiment and valuations, which are stretched. The thing about those three items is that they're

not good timing tools. They can persist, which just means the momentum gives you the lift in the near term and over the medium term. Watch those three things. It's so tricky, I think, at some points because you look at everything you said, you're like, well, these stocks continue to go up almost unabated. Look at Nvidia. If I own the stock, should I trim the stock? Should I take my position down? But wait a minute, it keeps going up and I don't want to miss it. It speaks very much to what Tony Pasquarello at Goldman has been saying. And it sounds like it melds with with your point of view. He's like, OK, the dynamics in the game remain inherently friendly for risk. Right. I think we agree with that. With that said, the profile of tactical risk reward has changed. It's like sentiment measures are elevated. The trading community is already long. The momentum factor is stretched.

So I've got no problem if you want to simplify, you know, your exposure to the best parts of the market. But I also wouldn't take my eye off the ball of the horses in this race. So how do you navigate all that? I think that the way we interpret all of these things being stretched, positioning and sentiment and valuation, is that they add to downside risk if we get a catalyst. And the catalyst likely is an earnings bump, which just means that as long as earnings are surprising to the upside and we see a lift in estimates, then those things aren't as much of an issue. If earnings revisions start to move materially lower, then the valuation, the sentiment, the crowding and positioning is what would really cause you to see a bigger unwind. Do you advise staying with the mega cap trade? Because, you know, this idea that the market's

going to broaden and broadening, we have to be careful. It's beyond the small caps. I don't know if the Russell is necessarily the great litmus test for the broadening. I mean, if you look at industrials and some other areas, those charts look great. There's like 50 percent of industrials are within 5 percent of their new all time high. So it's not like those stocks have not done anything. Yeah. And we're also seeing a rebound in PMIs, which is typically good for the industrial stocks as it starts to happen. We see good charts within health care as well. And I think it speaks to the pickiness within adding new positions. So you can let your winners ride, let the momentum take you within tech,

acknowledging that it's crowded and expensive. However, when looking for new positions, looking in those areas that are earlier in their recoveries, and that's one area like health care where we're finding good charts to buy. That's another debate, though. You said expensive. I mean, are those stocks really expensive? This great debate over NVIDIA's valuation, is it really expensive? I had a conversation earlier this week with Stacey Raskin. She knows that company better than anybody, says not misnomer. It's actually cheap. And it's cheap relative to a lot of these other names, even though the stock price has elevated as much as it has based on its earnings and guidance. It's not expensive.

What is valuation when your earnings estimates go up by 4x? Earnings were $6. Meaningless? I don't know. I actually think it's an irrelevant discussion when earnings are going up so much because it's a moving target. When valuation will matter is when there's a question about the sustainability of earnings. So because we've seen earnings estimates go up to $24 a share for 2025 fiscal year 25 earnings, the bigger question is that if you start to see those estimates get cut, that's when valuation becomes a relevant

deciding factor. But today it's just simply less relevant. What about rate cuts? How relevant, to use your word, are they today? Well, they certainly haven't been to start this year. You've gone from pricing in six and a half rate cuts in January to 3.3 rate cuts today. And yet valuations have continued to expand and yields have continued to go up. We do wonder if you get to a threshold where yields will matter, where yields will really start to pinch to say, do I want to pay 21 times for the S&P 500? As of right now, it hasn't mattered because it's been an earnings story, which we get back to the point of as long as earnings estimates are going up, valuations will be mostly tolerable, at least in the short term. It's as soon as those estimates go down that you could see an unwind of valuations. I mean, do you think that they will?

Right. The 10 years I look at it here is 425. When it, you know, got when it got under four and then it got back and then, OK, it starts to back up even further. And you're like, well, I don't know if the market's going to be able to handle this. Well, it's handled it because you got through earnings season, to your point, very well. Can we keep up the pace? I think it depends if the market gets any of the cuts that it's expecting. Right now, it's still saying that, hey, if I get three cuts at some time in May or June, what's a couple of 25 basis points difference by a few months?

If we see a more meaningful uptick in inflation, and I would watch very closely the manufacturing and services PMI prices index. They're moving up, which means it calls into question the 18 months of disinflation that we've had and if it can continue. Does that keep the Fed from doing any cuts this year? It's not our base case yet, but it's a higher and higher probability as we see those PMIs pick up. We know cuts are pushed off and we know they're probably not going to be as aggressive as we see those PMIs pick up. We know cuts are pushed off and we know they're probably not going to be as aggressive as we once thought. But even people who think that they shouldn't do anything now, Robert Kaplan, former Dallas Fed president on this program earlier this week, said, OK, we'll do it later this year. And three seems reasonable. Waller, Fed governor, the risk of

waiting a little longer to ease policy is lower than the risk of acting too soon. So you're getting a lot of, OK, we can wait. The economy, maybe earnings in some respects, have given us the capability of waiting. But they're still coming. Isn't that all that matters? Rate cuts are likely happening this year at some point. We think it's becoming more of an if, at least in the first half of the year. The Fed, and we keep coming back to this, has never cut with PMIs accelerating and they're turning up. We're seeing a cyclical recovery in this economy, partially because financial

conditions have eased so much. Financial conditions are at their easiest level since 2021. Obviously, a very different backdrop for the Fed, which just says there is very little urgency for this Fed to be cutting rates. And so it would call into question if we don't get any cuts this year. Again, not our base case yet, but a rising probability could that challenge yields. OK, now bring up what Bespoke said today, because I think you you would agree with this, too. Don't be surprised if very loose financial conditions fueled by AI mania end up pushing the Fed into the later cut than would otherwise be the case. So we need to think about that now, too, this incredible run in the stock market and the alleged looser conditions because of a big stock market rally. And it's not just a

big stock market rally. It's also credit spreads. Because of the better economy, credit spreads have come in a lot. And they're very, very tight, which just says the credit market is feeling good. It's feeling happy about the outlook. And that's one of the reasons why financial conditions are so easy. Financial conditions typically correlate with better growth. They're considered to be stimulative to growth when they are this easy. Does that work against the Fed? Would you buy small caps today? I know I said, let's be careful about using that as the litmus

test for the broadening of the market. But, you know, the Russell is holding above 2000. There is a lot of hope for those stocks. What do you think? It's interacting surprisingly well with its 50 day moving average, despite the move higher in yields. I would not buy all small caps. I'd be selective within small caps. We like small caps that generate a lot of free cash flow and have good balance sheets, which just means that if yields go back up, if the Fed isn't friendly, those names can still do rather well, even keep pace with large caps because they don't have the balance sheet risks that junkier small caps have. Where are we on commercial real? with large caps because they don't have the balance sheet risks that junkier small caps have.

Where are we on commercial real? I'm trying to think of all of the things that have bubbled up into the narrative from time to time, not so much now. Commercial real estate is going to blow up and that's going to impact more regional banks. When we speak about the Russell, you can't really avoid that because they're a large, if not the largest part of the Russell. Deficit, it's only going to fall. You saw a bond auction this week was kind of sloppy. really avoid that because they're a large, if not the largest part of the Russell deficit. It's only going to fall. You saw a bond auction this week was kind of sloppy. You know, Kaplan,

I mentioned him from the former the former Dallas Fed pres, you know, always talks about that. Are those on the back burner for the foreseeable future? I don't think we can ignore the bond auction simply because that could provide a lift in yields. And that is actually very related to commercial real estate stress. There has been some optimism that if the Fed cuts rates this year and we get lower yields, then a lot of the pain within commercial real estate can be avoided. If we don't get those lower yields and refinancing, and this is the key point, refinancing starts to kick in in 2025 in a more meaningful way. So extend and pretend starts to become less of an option. 2025 could be an issue where we actually see more stress.

For right now, it might surprise you, commercial real estate construction spending is actually still at an all-time high, which just means it hasn't filtered into the real economy because it's such a lagging indicator, such a lagging part of the market. Not to mention the fact that it's not like every stock with exposure to commercial real estate has been a dud. SL Green, for example, since November 1st, I think it's up like 50%. And I may not even be giving it its full due. So your point's taken. You know how the market is. It has tunnel vision. What's in the here and now? You start talking about 2025 and 2026, the market's like, all right, we'll get to it when we get to it. But we're going to play the game, this game, as long as we can play it. And you probably overpriced the downside over the course of 2022 and 2023.

And maybe you overpriced the upside. But, you know, we keep watching those 2025 broad earnings estimates because we'll start pricing in the path for earnings by about mid-year this year. So if a recession risk goes up for 2025 and that seems like a lifetime away, you'll actually start pricing that in, though, later this year. OK, let's bring in Jordan Jackson now of J.P. Morgan Asset Management. He joins us today from Washington, D.C. Good to have you back. Bullish or not? I'm pretty bullish. I'll tell you, it feels like it's kind of hard to be bearish.

When you look at the macro backdrop first, obviously the Fed's going to be easing at some stage later on this year. You're seeing positive earnings growth. Now, certainly expectations for 2024 have come down from their peak of around 13%. They're now down at somewhere around 10.5%. And our macro models are actually improving, and it seems we're kind of coalescing around earnings growth this year of around 8% to 10%. I think we're going to have the MAG-7 continue to be magnificent,

and I think we're going to have a broadening out performance in other sectors that have sort of lagged the big boys in the index. What is that? I'm sorry. I'm sorry. Finish your thought. No, I was just going to finish on that point there that I think some of the other parts, other $4.95 or so in the index,

are going to play a little bit of catch-up after lagging most of last year. I thought you had finished your statement. I apologize for that. I was going to ask you simply, so where do you want to be? I mean, if you think the MAG7 is still going to lead or MAG5 or however many stocks you want to put in the best of the best group right now, do you want to remain overweight to those areas? In other words, at what point do I say, you know what, I've got confidence that this market's going

to continue to broaden. And if I have fresh money to work, you know, I'm not just going to keep loading up. I had somebody buy NVIDIA today on halftime now at 800 bucks, a little little bit shy of that. But you know, my point's like, OK, I've got money, I'm bullish, I want to put it in the market. Do I put it into the mega caps or do I actually look for other areas? Well, let's be clear. I mean, it had not been for, let's call it the Magnificent Five or the Fantastic Four, whatever you call it, earnings would be down for last year, right? They're up about 30% from an earnings perspective. And then when you look next year, markets are expecting somewhere around 20% to 25% earnings growth from them. So they're carrying their weight.

Right? And I'm bullish. I'm still buying at these levels because, again, they're delivering on very, very lofty expectations. And so I think they'll continue to deliver. The broader macro backdrop remains supportive for other parts of the market as well, other value-orientated parts of the market also. So I think this is a rally that's worth chasing. Assuming earnings hold up, as Cameron was saying,

and you sound pretty confident that you think they will. And even if potentially earnings don't hold up as Cameron was saying and you sound pretty confident that you think they will. And even if potentially earnings don't hold up and something more dire or sinister plays out in the economy later this year, the Fed's going to cut rates more aggressively, right? We've seen time and time again the central bank of the U.S. continuing to step in and be willing to stabilize markets. And I think right now the trajectory for for rate cuts a lot of it is around so the easing in financial conditions but you just visibly from a market psyche uh... and sentiment perspective i think the fed recognized that they can cut rates which is visibly good for for

the market without necessarily having to ease policy because it all boils down to real interest rates at the end of the day the defense cutting gradually in line with what the Fed, with how inflation is coming down, then you've got real rates that really don't budge all that much over the course of this year. Cameron, you're a student of the market. I know that. You look at market history and all that.

You look at what's going on with NVIDIA, $2 trillion in market cap. I thought we were just saying that it was $1 trillion in market cap, but here we are and say this has gotten a little bit ridiculous. It's a little too frothy. I want to read you something else. I quote Tony Pasquarello of Goldman a lot because I think he's got good stuff. Here's what he says, OK, about NVIDIA. Here's the incredible part. When the market bottomed in October of 2022, NVIDIA had a market cap of $280 billion and a 12-month forward P.E. of 32. Yesterday, it added $267 billion of market cap in one day alone, rounding up to $2 trillion in market cap, and the P.E. is now at 33 times. That is incredible. But it's all about those earnings. When earnings go from $6 to $24 for this year's estimates,

that's what supports the magnitude of the move we have. And that's what's so very different than other big tech cycles where like the late 1990s, where it was not based on earnings. It was all based on valuation expansion. The key thing for NVIDIA, though, is can you keep the earnings up? And can earnings from today's level actually be extrapolated forever into the future? And there will come a time where semiconductors, it's a very cyclical industry. You will see a slowdown. That slowdown doesn't look to be happening right now. That's for sure. But eventually it will happen. And that's

when you would call to question the valuation of the stock. Jordan, what about the consumer? You know, I guess it depends on what part of the spectrum you're you're talking about. But Walmart, you know, makes us believe that, OK, well, that's a stock worth buying. Perhaps Toll Brothers, Royal Caribbean. We're still spending, you know, depending on what end of the spending spectrum you are. You're spending more. And that, in some respects, dictates the kind of the spending spectrum you are, you're spending more. And that, in some respects, dictates the kind of stock you may want to buy. But do we need to increase our exposure to the consumer trade in whether it's on the staple end like a Walmart or a discretionary end like a Royal Caribbean? Well, our broader case is that consumption growth is going to slow. Obviously, you had retail sales numbers for January coming a little bit weak and downward revisions to the December retail sales numbers. So it does suggest that the consumers are coming under a little pressure. And maybe to some extent, as overall growth slows down, you'll see consumers beginning to spend down in terms of their product, you know, maybe deciding to shop at maybe a lower, a big box retailer, so to speak.

But I still think that the consumer is, I'd argue, is bending but not yet breaking, right? So long as you have a very tight labor market and the American consumer feels confident that they're going to get a paycheck come Friday afternoon, they're going to spend the next three weeks worth of that paycheck right that's just kind of it that's just kind of the the juice that the American consumer kind of runs on so while consumption growth may slow obviously we're avoiding and we look at the credit side of things and securitize and asset-backed securities we're avoiding those lower quality borrowers are still

you know embracing those higher quality, upper middle class consumer stocks. So I don't think you should dump these names, but I also don't think we should be aggressively over-weighting also. We'll leave it there. It's good to talk to you both. Jordan, we'll talk to you soon. Cameron, of course, we'll see you back here post-night. Let's send it to Pippa Stevens now for a look at the biggest names moving into this Friday close. Pippa? Hey, Scott. Well, Block is having its best day since November 2022 after beating revenue estimates and issuing upbeat guidance.

The payments giant reported strong growth in its Square and Cash app segments and raised its outlook for a key profit metric. Those shares up over 17 percent. And MercadoLibre is having its worst session since May 2022 after posting a huge earnings miss due in large part to a pair of tax impacts. The Latin American e-commerce giant also missed expectations on operating income. Those shares are down roughly 10 percent heading into the close. Scott. All right, Pippa, we'll see you soon. Thank you, Pippa Stevens. We're just getting started here. Up next, more gas left in the tank. That is the call today from Tom Lee of Fundstrat. The major averages are trying for record closes yet

again. He's going to lay out how much upside he still sees ahead for stocks. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. All right, we're back. The S&P 500 stabilizing a bit after hitting another record high, breaking above 5,100 for the first time. And my next guest says there is still, quote, a lot of gas in the tank for this market rally. Let's bring him in. Fundstrat's Tom Lee back with us. It's good to see you again.

Welcome back. Great to see you, Scott. Well, you've been right on the money. So tell me why there's more gas in the tank for this incredible run. Well, I think foremost, there's a lot of evidence of dry powder on the sidelines, meaning there's still a lot of potential buying. Margin debt, for instance, is only at $700 billion. It was $710 billion in October just a few months ago and almost $950 billion in October 2021.

So investors aren't that fully invested. Sentiment's also still pretty negative based on all the conversations we do with our clients. And the best evidence is that stocks are going up on good news. That means the good news isn't priced in. And then as Mark Newton, our head of technical strategy, says there's no technical breakdown. So I don't think there's any signs of a top near term but those are the things we'd be looking for for when maybe this

current rally could run out of gasoline it's funny you you really think that sentiment is is still negative i i read a few moments ago you know from tony pasquarello at goldman sachs how you know sentiment is is pretty stretched. You know, everybody's long. You really think there are that many people who are still non-believers in this? Now, I know there are some out there because I hear from them, but you really think there are that

many? Yes. I mean, I think there's a couple of reasons. One is many people think the stock market's very concentrated and the FAANGs or the MAG7 are expensive. But, you know, NVIDIA's free cash flow yield is 3%. It's the same as the S&P. It's actually not expensive. And I think there's still this inflation mindset that inflation is stalling or could come back. And so investors are kind of inclined to short the market. And I think the best evidence that sentiment's still pretty negative is I hear people talk about the market being expensive, but outside of the fangs, it's trading at 15 times forward. I mean, that's never been an expensive multiple. It's just people look at the price appreciation of the market and because they may not have participation, think it's a bubble. You don't have any concerns at all that it might be, especially, you know, stocks like NVIDIA, which, as we say, seemingly, you know, went from one trillion to two trillion in market cap, quote unquote, overnight.

I mean, in some ways, I think, you know, stocks rise rapidly when either estimates change or they they want to reprice the future growth. What's interesting is NVIDIA's free cash flow was 7 billion a year ago. It's now close to a 50 billion run rate. So it's gone up by, you know, seven times and the stock price hasn't risen by that much. I don't think we will have a bubble until the consensus declares there's no bubble and there's no risk. And then that's when we are likely in a bubble. But I think a lot of folks raising the prospects that this is a bubble means it's still early. The market seems to be giving the Fed the benefit of the doubt that,

though it might not cut as early as it once thought, it's going to cut at some point this year. There has to be the expectation in this bull run that cuts are coming sometime this year, I would imagine. What happens if they don't? I mean, if the Fed doesn't cut, I think it would pose quite a lot of risk for the stock market. I don't think the Fed's going to hesitate just because the stock market's risen or the isms have turned up you know the fed's policy rate of close to five and a half percent is the highest policy rate in the world for any developed country look at the u.s tenure it's at almost four and a half percent germany's tenure yield is 2.6 percent i i think that the bond market itself is telling us that

the fed is overly restrictive right now. You think they should cut in March? I think the probability of cutting in March is higher than what's being priced in. And a lot of it will depend on what February CPI looks like, which comes out March 12th. But, you know, we think there are some anomalies in the January CPI, including poor seasonal adjustment and the fact that auto insurance is actually accounting for almost more than half of the rise in the super core services number. And if those start to show improvements, I think whatever sort of hot CPI we saw in January and the repricing reverses to a

large extent. What happens if it's not March and what happens if it's not May? You know, if it's not March and May and it's not even looking like 2024, I do think it puts pressure on stocks. But if it's a Fed that isn't satisfied with six out of seven good inflation reports and they suddenly move this, you know, the guidepost has to be nine out of 10. I think the stock market gets impatient and just rallies anyways, but it just really depends on the path of inflation. The other, you know, issue, I suppose, as some are talking about is this whole loosening of financial conditions because of this AI boom in the stock market. Do you think that's an influencer on the Fed? And on one hand, we're all revved up as bulls because we look at NVIDIA going up every day and we're like, wow, this is incredible. Look at these new records. But there's a price to pay

potentially for that. And that is perhaps putting off these rate cuts further than we're able to tolerate? You know, the AI boom is creating wealth, right? People who own the stock. But as you know, that isn't been translating into necessarily consumer spending incrementally, especially for the average American. And if the AI boom is actually replacing the labor market, because that's really what is being targeted, right, turning a service job into a piece of silicon, which 98% goes to NVIDIA, that's actually deflationary and it's actually deflationary to the labor market. So I think the Fed doesn't necessarily have to be worried if AI stocks are actually booming. Okay, so let me make my final question away from AI. Aside from that, your best idea in the stock market today is what? Well, I think investors really kind of have to realize this looks like a cyclical early cycle stock market trade, Scott, meaning October 2022 was the low,

and the market's getting stronger this year with breadth expanding. So I like industrials and I like small caps. I think those are good ways to add sort of equity exposure. And if you wanted to avoid tech and AI, that's it's a good way to actually take advantage of what's happening. I mean, I know you like to make big calls. You're still sticking by this 50 percent gain in small caps for this year yes uh and you know it's premised on the idea that small caps are trading at 44 percent of the price to book of the s p exactly where it was in 99 and if the fed starts cutting and it's you know when or if uh i think it's a launch point just like 99 for 12 years of relative gains for the small caps so i think it's a good point, just like 99 for 12 years of relative gains for the small caps.

So I think it's a good risk reward right now. All right. We'll leave it there. Tom, appreciate it. Good weekend to you. We'll see you soon. Tom Lee. Thanks, Scott. We do have some news we want to get to now. The FTC announcing it's taking action against tax prep company H&R Block. The agency alleging the company wiped consumers' data requiring them to contact customer service when they downgrade to more affordable online products. And that H&R Block, quote, deceptively marketed their products as, quote, free when they were not free for many customers. We'll continue to follow that story. Coming up, making sense of the mega-cap mania, the tech sector hitting more records.

We said NASDAQ's going for a new closing high. It has a lot of work to do between now and the end of the trading session in 30 minutes. Most of the MAG7 stocks are sitting on double digit gains this year. Now, Deepwater's Doug Clinton joins us to size up the sector and see if there really is a lot more room to run. We'll be right back. Welcome back. Tech stocks are pulling back a bit in the final hour of trading, but still hovering near a record high as we head towards the close. The sector overall getting a big boost this week from that post-earning surge in NVIDIA, you know by now. Joining me to share his tech playbook, Doug Clinton of Deepwater Asset Management. Welcome back. What do you think NVIDIA proved to us this week?

I think it proved that the AI bull market that we're in right now is not over. I know there's a lot of questions about the valuations of the Mag7 and how quickly those valuations seem to have changed, at least how quickly those stocks have moved. But I think that what NVIDIA's results showed us and a lot of Jensen's commentary was that it still feels like we're pretty early in this AI bull market.

That doesn't mean that we might not see pullbacks here and there as we go from what we think is a bull market now to what will inevitably become a bubble. I think it will take a few years, but I think that it kind of gave us a little bit of an all clear in terms of continuing to be excited about that AI theme. So you would agree with some like Adam Parker, for example, on the show who makes the argument, we're not even close to the end. In fact, we're barely past the beginning of this whole boom and what it's going to mean. And as such, you need to remain very heavily invested in these large cap plays. I would agree with that. Depending on what analogy

you want to use, you could say that we're in 1996 of the 2000 boom, if you want to equate it to that. Maybe that means we're in inning three and a half or four or something like that. But I think that that's the right perception. We're still early on. Obviously, the market is starting to get the reality of how big AI is. So it's not in the very beginning, but I still think we have several years to go. The thing about the Mag 6, I'll exclude Tesla for this quick discussion, is that even though they've moved so much, I think people see this emotional reality. They look at the charts. They look at these mega cap tech stocks being up 50, 100% in the last year. The fundamental

reality, though, is that they're not that expensive. I know Tom just mentioned on the last segment, NVIDIA trades at about a 3% free cash flow yield. If you actually look at the average for the MAG-6, it's about 3.5%. You compare that to 4.6 or 4.2, rather, on the 10-year. For the best companies in the world, that's just not egregiously expensive. Sure, but they're not all NVIDIA, right? Maybe we also learned that this week with what happened with Palo Alto. Now, how would you assess what that lesson is to be learned, if any, from the way that that stock ran up into the number and then the way it plunged from it? I view that as sort of separate from the AI discussion, and it really feels, I'd say, idiosyncratic to Palo Alto.

The issue there was really the strategic change that they've made. And I think on top of that, we've kind of had two or three or I think two out of three rough quarters here in a row. And it just feels like there's more concern growing about the forward growth opportunity for the company. So anytime a company comes out and talks about changing the way that they're going to market, in the case of Palo Alto, kind of offering more free products, trying to get more customers in the door, and then ultimately land and expand, I think that raises questions for investors. And they're probably going to have to show that this new strategy will result in the kind of growth that they've talked about over the long run in the next couple of quarters before I think people get really excited about the stock again.

That makes sense to me. I'm not, I'm also not trying to suggest, you know, that Palo Alto, some great, you know, AI play, but if you look at the, let's say the, the euphoria, how it's being represented in the market, I would go 1A, AI, 1B, in many respects, cyber, right? Those stocks and the way that Palo Alto and some of these others ran up when everything theoretically was going up, whether it's software, cloud, AI, is that cause for concern to some degree? I think it depends really on the companies that you're invested in. So one that we own, CrowdStrike, we still think that they have a pretty long runway for continued growth. If you think about cyber as an industry, why has it had such a bid, maybe similar to AI,

not quite as aggressive? I think the reason is that because as we go into this AI age, cyber is going to become a more important part of every company's infrastructure spend. They have to protect whether they're doing training on models, whether they're running inference on models. They have to make sure that they keep that data secure. That's a cybersecurity application. And then on top of the AI opportunity, we also have a persistent tailwind of, I think, increased global turmoil. So these companies, I think they reasonably do have this strong tailwind from emerging AI, from the global tailwind, where you could argue that they should be able to grow 10, 20 plus percent a year for the next three to five years. I know it's going to be shocking, but we're going to talk about a stock right now that has nothing to do with cyber.

It has nothing to do with the cloud, has nothing to do with AI, and it's MercadoLibre. It's one of your favorites. Is that right? Tell me briefly before I let you run. It is. It's getting beat up a little bit today. The reason is they are, look, the leading e-commerce player in Latin America. They really have no meaningful competition.

They had a little bit of a hiccup in the margin this past quarter when they reported last night. This is something we see commonly in leading e-commerce stories. It was a quarter of growth for them. It was a quarter of investment into some of their logistics infrastructure and supporting Melly Plus, which is their version of Amazon Prime. I think it's all good investment that will go toward future growth, and it's a company that we continue to like here. Doug, we'll see you soon. Thank you. Thanks, Scott. All right. Up next, we're tracking the biggest movers as we head into the close. Back to Pippa Stevens, who is standing by with that. Pippa. Well, Scott, it is getting more cloudy for one energy stock with shares dropping. The name to watch coming up next. All right. We're about 15 minutes from the closing bell on this Friday. Let's get back to Pippa Stevens now, who's taking a look at one name that's down 30 percent for the week. Which one is it, Pippa?

We're talking about Sanova, Scott, with that post earnings drop accelerating with the stock now down 35 percent in the last two sessions. The company missed on the top and bottom line with the CEO calling 2023 a, quote, formidable test for the residential solar industry. But it seems to be liquidity concerns that are really hammering the stock, after Sunova said it's putting in place a $100 million at-the-market equity offering in the coming weeks. Now, management said it's for good housekeeping and that they don't intend to utilize it this quarter, but it certainly doesn't help sentiment in an industry already facing many headwinds, the stock losing half its value since the start of the year. Scott?

All right, Pippa, thank you. Pippa Stevens. Still ahead, Warner Brothers warning. Those shares are plunging this hour after fourth quarter results. Take a look down about 10%. What has investors heading for the exits? We will explain coming up. But first, a quick message as CNBC celebrates Black Heritage. In environments where not many people look like you, you will be constantly challenged to prove yourself.

So you need to always invest the time to be well prepared. Being a constant learner is what I've loved throughout my life. My incredible mother taught me to always try to treat others the way you would want to be treated and pay it forward, which has certainly influenced my mentorship and sponsorship of others throughout my career. All right. Do not miss a big CNBC exclusive interview. That comes your way on Monday when J.P. Morgan CEO Jamie Dimon will be live from the company's annual global high yield and leverage finance conference. That's Monday, noon Eastern on the Halftime Report. Cannot wait for that. Up next, Carvana riding in the fast lane toward a two-year high today.

Warner Brothers, though, those shares are sliding to a 15-year low. The details behind both moves when we take you inside the Market Zone next. All right, we're now in the closing bell Market Zone. Julia Borsten digging into the major slide in Warner Brothers shares. Phil LeBeau joining us with Carvana's big move, plus Bob Pizzani breaking down the crucial moments of this trading day as we head into another record close, trying for that on the S&P. I don't know that we're going to get it on the NASDAQ, but it can only do so much. Julia Borsten, though, digging in on what's happening with Warner Brothers today

and this big slide. What's happening? Yeah, quite a slide. Warner Brothers Discovery shares are down 10%. This after the company missed analyst targets on both the top and bottom lines as the strikes hurt studio revenue and as linear TV advertising dropped 14%. Now, on the upside, the company's direct-to-consumer division was the first media streaming division to report full-year profitability. But Moffitt Nathanson, with a

neutral rating on the stock, writing, quote, all eyes are on how much room there is left for management to manage costs to offset the challenges and linear, and most importantly, what the longer term opportunity is to grow direct to consumer revenue and profits. Now, speaking of direct to consumer, CEO David Zaslav said his streaming sports joint venture with Disney and Fox is pro consumer. This is a subtle response to the Fubo TV lawsuit alleging that this new streaming bundle is anti-competitive. Scott. All right, Julia, thank you. That's Julia Borsten.

Phil LeBeau, tell me about Carvana, because it's a bit of a different story of what we're used to. There's been big short interest in this name. That's how you've heard about it over the last few years. But this is a big and different story today. Oh, the shorts are running for cover today, Scott. Take a look at shares of Carvana, up more than 30% after reporting after the bell yesterday

its first annual profit. That was enough to send the stock moving, and it continued moving all day long. Three things are driving the Carvana surge right now. You had two analyst upgrades, Raymond James, William Blair, both upgrading the stock. The fourth quarter gross profit per vehicle up 138 percent. Big improvement year over year. And then you've got short investors who may have been forced to cover the short interest. Remember, about 30 percent. Here's CEO Ernie Garcia earlier today on Money Movers. We're in a great spot. I think, you know, we have really got ourselves to a place where I

think the ball is in our hand. We're in control. We're in the best position we've ever been. And we just need to keep executing. I think the trends are very strong across the entire income statement. We're delivering great customer experiences. We're in incredible competitive positions. All right. Despite going up 30 percent today, take a look at this stock over the last three years, because you might be saying to yourself, wait a second, did this trade for well over $300 a share at one point? Yes, it did. In the second quarter of 2021, it was trading at about $370. So a nice move today, but still long ways away from where they were just three years ago. Scott, back to you. Yeah, the short's betting on the end. I mean, you look at where that stock traded in the middle of that chart we put up.

It was rather ominous for a while, Phil, you know? It was. Maybe back on the road to somewhere. There it is right now. If you look at that chart, right smack in the middle, it was pretty ugly. Yeah, and that was because largely when they had taken out a large amount of money, borrowed a large amount of money, I should say, in order to buy an auto auction house. That was the part where people said, wait a second, how much debt are you taking on? Are you able to pay this debt? And then they struggled a bit. That was when people were saying, is bankruptcy a possibility? They're not talking about bankruptcy now. Certainly not talking about $370 a share, but certainly not also talking about bankruptcy. Yeah, good stuff, Phil. Appreciate it as always. Thank you, Phil LeBeau. Bob Fazzani,

what did we learn this week? So we got, you know, we're going to get new highs on the S&P, more new highs on the Dow. NASDAQ still working on a new closing high. But what do we settle this week, do you think? We settled that AI is real and these NVIDIA numbers are eye-popping enough to say this is a new paradigm, certainly on the level of what was going on with the Internet in the 1990s. I think that's been settled. I struggle to explain how important NVIDIA has become. So the S&P is up 6% this year, 326 point gain in the S&P, 87 of those points, Scott, are NVIDIA.

26% of the entire gain of the S&P is due to NVIDIA this year. But I want to point out that there are other sectors that are still got great momentum. Earlier the week, I kept putting up every day some big momentum names here like Merck, J.P. Morton, American Express, Walmart, Procter & Gamble, Travelers. You see some of these names. They've all been spectacular in the year to date. And then there are industrial names that have been doing great. GE has just been a monster recently. Parker Hannafin, Eaton, Ingersoll Rand. These companies were big movers at the end of last year, and they continue to be favorites. So please don't keep emailing saying the only thing you guys are talking about is NVIDIA. There is some other momentum stocks that are out there that are quite, quite noticeable and you don't have to go very far. And a lot of them, Scott,

are sitting in the Dow Industrials. Do you think we got some reason then to broaden or did we just reinforce go big or go home? And go big or go home doesn't necessarily mean only to the mega caps. It can mean to those industrial stocks you're talking about, too. Yeah, I think I personally love it when the market broadens out. But let's not kid ourselves. Let's not try to make an argument, oh, we have to broaden out. This story, this AI story is so real now. And the NVIDIA numbers were so overwhelming

that it is very hard to argue, well, you know, the rest of the world is going to somehow catch up. I think what we need to see now is a broadening of the story in companies that are, for example, IPOs that are going public. I think that you're going to see a spate of AI related IPOs. You even see Reddit now trying to make an argument that somehow, oh, they're selling their data and they're becoming more AI-oriented. Maybe. But I'm hopeful that the AI story is going to broaden out into IPOs and into other companies that are going to just be more efficient overall by using it. We'll see what a new week brings. Bob Pizzani, thank you very much. You enjoy the weekend. All of you as well. New highs for the

S&P, new highs for the Dow. We're not going to get a closing high for the Nasdaq today, but there always is next week. I look forward to seeing you then.