Closing Bell - Closing Bell Overtime: 10 Years Of Satya Nadella’s Leadership At Microsoft; Palantir’s Monster Quarter 2/5/24

Episode Date: February 5, 2024

Stocks retreated after Friday’s record close; Cantor Fitzgerald’s Eric Johnston and Crossmark CEO Bob Doll break down how they are advising clients in the middle of earnings season. Earnings today include NXP Semi, Palantir, Simon Property and Chegg. DA Davidson analyst Gil Luria breaks down Palantir’s monster quarter. HSBC Private Bank Americas Chief Investment Strategist Jose Rasco on his favorite sectors. Plus, Jon looks back at 10 years of Satya Nadella’s leadership at Microsoft.

All the major indices in the red, the Russell down 1%, well, Treasury year spike, stock struggle, although we are closing off loads of the session. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Port with Morgan Brennan. Well, McDonald's investors not loving it today. That stopped the biggest drag on the Dow after sales miss. And not surprisingly, consumer discretionary, one of the worst sectors today, along with materials and real estate. Now, investors turning to another big slate of after hours earnings. We will have instant analysis of the results from NXP Semiconductor, Palantir, Simon Property Group and Chegg. And now for more on the markets, let's bring in our panel. We've got Eric Johnston of Tanner Fitzgerald, Bob Dahl from Crossmark.

Guys, good to see you. Bob, you're still calling this market a sugar high? Yeah, I am. And as you pointed out, that's the path of least resistance is still higher because there's a lot of momentum. But I'm one of those old guys is worried about, you know, 20 times earnings and the Fed's not going to live up to cut expectations. And I don't see how we get double digit earnings growth. If I put all to get that together, I'm invested, but I'm nervous. OK. And Eric, you were bearish for a while, you know, last year, but it's a new year. So we'll get off that. Last time you were on, you said you weren't so excited about Tesla and Apple, but the other big stocks you were, you were right about that.

So how are you playing the market from here? So we think it's going to be a tactical market. We still think it's going to be a very tactical market. As Bob mentioned, you have a lot of momentum in the market. Certainly the AI, big five names of the MAG5, we still like. Their fundamentals are very strong. The secular growth there is very strong. But at the same time, you're also in an overbought market. Valuations are what I would call excessive. And the economy still has a lot of risk.

So I think from a tactical perspective, right now you have a market that believes. Eric, we got our first earnings crossing, so I'm going to interrupt you. Hold that thought. Palantir results are out. Palantir earnings in line, $0.08 per share adjusted, five straight quarters of gap profitability for the company now, revenue of $608 million. That was quarters of gap profitability for the company now. Revenue of $608 million. That was a beat.

Here's the big story. U.S. commercial surging 70% in Q4 year on year. U.S. commercial customer count up 55%. Total contract value for U.S. commercial up 107%. CEO and co-founder Alex Karp telling me Palantir did 103 contracts above $1 million. That was up 2x at the $5 million range, up 3x at the $10 million range, up 4x, adding, quote, we've done this with a nascent sales force that's finally getting its toe in the water. Karp saying, quote, the success and prowess of U.S. commercial will bleed into the most interesting governments in the world.

Case in point, Israel, which is buying Palantir's warfare software and what CARP believes is a first for a company that isn't Israeli. The artificial intelligence platform, AIP, those boot camps playing a big role here. In October, Palantir targeted 500 over the next year for its commercial customers or prospective commercial customers. It did 560 in four months. CARP saying they're going to aim for 1,500 to 2,000 boot camps this year. CTO Shyam Sankar saying, quote, it's easy to build a fun little chat bot, but it's much harder to do something where you're actually generating extensive value from what you're building. With the boot camps, you get customers to build something that they're going to be proud to put in production. Now, Palantir not breaking out new customer mix of AIP versus traditional foundry services. Executives noting AIP integrating

across all of the customers, both new and returning. A few more things here. Commercial revenue up 32% on the government side. Revenue growing 11% on defense. Sankar noting he thinks monetization will lag a bit, quote,

because we're in the midst of this long-term secular shift in defense tech of the department learning that it needs to buy software and basically what that process is going to continue to look like. First quarter revenue, $612 to $616 million. That's slightly shy of street estimates, but other metrics for the full year do seem to be pretty strong here. CFO Dave Glazer noting 34% margin in Q4. That's going to come down slightly as the company invests. Still higher than the overall 23 margin. Guiding for U.S. commercial revenue in excess of 40 percent this year. That's going to be an acceleration. As I'm talking, the stock's moving higher. It's now up almost 4 percent. Final metrics here. Cash flow guidance, 800 million to a billion in 2024. And

perhaps unsurprisingly, John, Palantir is applying its own Gen AI capabilities to its own company. Karp noting, quote, part of the reason we're making so much money, if I dare say, is these LLMs have made our product even more efficient. We don't just need the same number of people to install it. We can train other people to use it quickly. So we have less people, more success. Stocks higher right now in after hours. Yeah, it's moving around a lot.

I sense a little shade in it's easy to build a fun little chat bot. You know, I like that quote. Who's that aimed toward? Who does that shade belong to? Well, that's a that's a good question. I guess we'll have to let maybe they'll have to ask on the call. Yeah. OK. All right. Well, let's go back to our panel because we were just talking about Eric. We were just talking about AI and the role that that's playing, especially for the Magnificent Seven, or I guess I should say the Magnificent Five that you continue to like here. When you see a name that isn't in that five category but is starting to realize the value of AI, how does it speak to this secular story within the stock market? Well, I think these five are really separating themselves from the rest of the market. And you can see that in the numbers. If you look at the earnings estimates for these, you know, for these five names, they're moving higher. They're seeing their growth rates

accelerate. They have the secular trends. And then you see what's going on, for example, in small cap. Small cap, you know, the group is underperforming for a reason. Estimates for 2024 were $92 a share about a year ago. They're now $82. So estimates there continue to get hit. They're most hurt by the constriction that we've seen in lending, by yields going higher, by what the Fed has done. They've been most hurt by that, and they're feeling the effects. And meanwhile, you have these high cash flow secular growers that are continuing to put up the numbers. And so although there's been a sharp outperformance in these mega cap names, we think that it's, you know, that relative outperformance is justified and will continue from here. Bob, I think about Chair Powell's comments in the 60 Minutes interview over the weekend. He basically reiterated what he said at the FOMC press

conference last week. But he was pretty blunt in saying that, like, you know what? March is really very likely, very strongly not on the table here. And that as of right now, they're still going to forecast three cuts this year. I mean, the Fed funds futures market is moving back towards correction and moving back towards the Fed speak. But yes, I realize we had a down day for the market. When you still see stocks this elevated and so many cuts still priced into the market here, is it sustainable in the near term or we really do for a pullback or correction? Morgan, obviously, we'll get one at some point in time. Who knows what the cause will be? But I think you can't have it both ways. You can't

have the economy accelerating and double-digit earnings growth, which is still the consensus, while at the same time, inflation comes down and the Fed cuts, you know, you pick your number five, six times. One of those things doesn't make sense. You can't have your cake and eat it, too. But the market's acting that way, especially now that the multiple is over 20 times, which I think is a reason to have a little caution. So, Eric, when will it be time for small caps again? So, you know, I think it's really going to be when their earnings estimates bottom. And that's probably going to take, you know, I think it's really going to be when their earnings estimates bottom. And that's probably going to take, you know, some time.

You know, people will use it when you look at the divergence. Like right now, for example, small cap relative to large cap is oversold. It's about a 30 RSI. So my guess is there will be times where you'll see these bounces. But I think they're going to be I think those are going to be are going to be short lived, you know, especially because we do have the Fed that is going to be cutting this year. But the Fed is going to be in restrictive territory for the full year, probably north of 250 bps above inflation for at least all of 24, even with those cuts. So in that environment, it is a tough environment for the small cap names.

Well, it certainly was today. Eric, Bob, thank you. When will small be big again? Well, there's always hope. Meantime, speaking of small, Chegg earnings are out. Julia Boorstin has the numbers. Julia? Top and bottom line results for Chegg, pretty much right in line with expectations. The company reporting revenues that were just half a million dollars ahead of

expectations coming in at $188 million. Earnings of 36 cents per share adjusted, also in line with expectations. We see the stock down about 3.5%. That was intraday. And looking in after hours trading, it looks like it is down even more. The key thing here is it looks like revenue guidance for Chegg is lighter than anticipated. So the company providing a range of guidance for the first quarter that is lighter than the consensus of analysts expectations. You see that weighing on the stock. Back over to you. All right, Julia, thanks. Yeah, we are just nine months past that moment

when Chegg warned of the impact of OpenAI on revenue growth. We'll see if that continues to potentially be a dragon. I mean, we'll see because Chegg CEO Dan Rosenzweig is going to break down these results in an exclusive interview tomorrow right here on Overtime, 4 p.m. Yeah, stay tuned tomorrow. In the meantime, NVIDIA hitting all-time highs thanks to a price target increase at Goldman Sachs. CNBC's senior markets commentator Mike Santoli is here to break down how the street is trying to keep up with NVIDIA.

Mike. Yeah, Morgan, it's been a struggle. This is a stock that, you know, doesn't always need an excuse like a raised price target to reach an all time high. Goldman went to eight hundred dollars as its target price for the stock. What you see here, though, is the street as a whole, while they absolutely love the story and overwhelmingly are recommending it right now, which is very much in contrast to all the holds and sells that we had, let's say, 12 months ago. You do see that the actual stock prices now eclipse the consensus target price. It's about 680. And even that $800 price target is aggressive as it seems relative to where this stock has been in the last year.

It's less than 20 percent upside. There's nothing really crazy about an analyst having that much of a projected win. So it seems as if for now the street is unwilling to fully get after it. There are a couple of fringe $1,000 price targets. At some point, this is going to get a little bit overdone if it goes really vertical. It's already a $1.7 trillion market cap. But for now, as bullish as the street is, the stock continues to outrace it. Now, take a look at NVIDIA along with AMD, the two kind of preferred and privileged AI plays within semis, how they've done over the last six months against the broader index. Now, this is a market cap

weighted Philadelphia semiconductor ETF. So that's got the partial influence of the heavy weightings in NVIDIA and AMD. And this XSD is basically an equal weighted semiconductor ETF. So it just shows you it's sort of a microcosm of what's happening in the overall market. If you have the big secular growth themes and the upward earnings revisions, you're really getting a massive premium and everything else is kind of wait and see churning sideways, Morgan. I know NVIDIA has been like generating profits and revenue hand over fist. But I also realize, especially when I see a chart like this, it is set up. The bar is so high for it to now hurdle in terms of the results that it's going to put up with this next quarter. And we've seen how that dynamic plays out, including with NVIDIA last summer.

There's no doubt about it. So it's always kind of a, you know, it's a push-pull. And so you're going to overshoot sometimes on the stock, and then you're going to have to see if the estimates can then get revised higher. Right now, earnings momentum has been very tough to fade, at least in a sustainable way. Really, the stock just went sideways for a while from, let's say, Labor Day of last year until kind of the early part of this year, very early part of this year, and then just sort of raced higher again.

So, you know, we'll see if something like that pattern can continue or finally some payback is in order. All right. Mike Santoli, thank you. Always got the great analysis. We'll see you again a little bit later in the hour. Don't go anywhere. This big hour of earnings keeps rolling with an analyst next who's going to tell us what he wants to hear on Palantir's call,

which begins at the top of the next hour. The stock is surging here on Overtime. Yeah, plus Microsoft shares up more than 1,000% since Satya Nadella became CEO a decade ago. And coming up, a closer look at the milestone and what the next 10 years could bring for Nadella and for Microsoft investors. Overtime is back in two. NXP Semiconductor earnings are out. The stock's higher in overtime.

Steve Kovach has the numbers. Steve. Hey there, John. Yeah, shares up about 4.5% here after hours after beats on the top and bottom lines from NXP Semi. EPS coming in at $3.71 adjusted. Street was looking for $3.63. Revenues, $3.42 billion versus $3.39 billion expected. As for guidance, a little bit mixed here.

On EPS, the midpoint of their range, slightly above estimates, while revenue for Key One, slightly below estimates. And then within some of the individual segments here, some nice beats for them. Automotive was right in line with expectations, but a beat on mobile. And we know how the mobile industry did last year. Also a beat on their industrial and IOT segment. John, send it back over to you. All right. I'll actually take it. Steve Kovach. Thank you. Shares up 4% right now. Palantir shares surging here in overtime as well. Joining us now is Gil Luria, DA Davidson, Senior Research Analyst. Gil, I want to get your thoughts on what we just got here from Palantir, because particularly on the U.S. commercial side, just trouncing expectations with very strong commentary. And it looks like Outlook for 2024 with that growth expected to continue accelerating. Your thoughts? Yeah, they've definitely cracked the code on how to translate their leadership in AI into the commercial business, starting with the U.S.

They've started these AIP boot camps, which is an accelerated pilot to get some of their enterprise customers to figure out how to use AI in their current context with these new generative AI capabilities. And they've been able to do that very rapidly after producing a new product set about a year ago. They're now fully in stride in terms of getting enterprise customers to engage and adapt some of these products early. Yeah. I wonder what your thoughts are on the fact that we now have a company that, from a GAF earnings perspective, has been profitable for five quarters. They're growing their free cash flow based on and particularly based on the forecast we have for 2024.

And we did get commentary from executives, including Alex Karp, the CEO over there, that basically they're able to do more with less as they take these generative AI and software capabilities that they're offering to commercial and government customers, and they're applying them internally as well. How does that play out in terms of the cost savings and what that does for the profitability of this company. Yeah, that is a very interesting aspect of adopting AI. This is a company that's led in the application of machine learning for more than 20 years. It's just a year ago that they started incorporating generative AI capabilities. Not only did they produce an external facing product set for enterprise customers, as we just discussed, they're also using those tools internally and they've

embraced that internally. At the same time, they did what a lot of technology companies did last year, which is start reducing headcount while they were growing by taking it out of places where growth no longer existed and refocusing it on places where growth was emerging, mostly around generative AI. Now, I think, Gil, that I heard that Alex Karp, the CEO, told Morgan that the commercial momentum they were experiencing is going to help their government business. You pointed out that government business growth has been lower recently.

Does that make sense to you? You have questions about that? It will take longer. It's harder to take people out of government and put them in a boot camp or an AI boot camp to start embracing new applications. The process for government acquisition is a multi-year process, but they're well on their way. They already led in that regard in terms of building government applications, but this is a multi-year way. They already led in that regard in terms of building government applications, but this is a multi-year ramp. They're not going to be able to have an inflection point this year. They'll be able to sell one government at a time, one agency at a time, and ramp that up over time. But again, they already go into this as the leading dual-purpose software company for the government. And so they're in a very advantageous position.

It's just unlikely that we'll see an inflection point this year in that business. Okay. Joe Loria, thank you. I would also just note something that I think we should watch for on the conference call when it kicks off in the next hour is going to be that national health services contract that they won with the U.K. as well. So when we talk about a company whose roots are in defense and intelligence, but government for them is expanding beyond that. Healthcare is one of those particularly robust areas that we'll have to watch. To his point, of course, across this

multi-year contracting process that you see. Yeah, with the stock up, what was it, 14%? Last time we checked in overtime, people will be listening to that call closely. Meantime, Simon Property earnings out. Courtney Reagan has those numbers. Court? Hi, John. For the fourth quarter, Simon Property Group is reporting $2.29 a share. We're not comparing this to analysts' estimates because there's quite thin coverage. That does, though, also sort of entangle up an ownership gain of about $0.31.

Revenue coming in in line at $1.36 billion. The expectations for guidance for the full year, though, the range is above analysts' expectations. At $6.45 to $6.70, the street looking for $6.31. Occupancy for Simon Property Group was 90 basis points higher year over year at 95.8% at the end of December. Base minimum rent was also up 3.1%. Those sales per square foot, as reported by the retailers at Simon Property Group, was down 1.3%. The company also raising its dividend to $1.95 from $1.90. You can see shares slightly higher here in reaction by about 1.3%. John and Morgan, back to you. All right, Court, thanks. And now it has been 10 years since

Satya Nadella took over as Microsoft's CEO, and he recently told me what drives him to deliver a sense of urgency and focus at the company. There's no guarantees, and especially in tech, there's no franchise value. That's kind of how I remind myself of this, is nothing lasts forever. Up next, a look at this historic milestone and the challenges that lie ahead for Nadella and for Microsoft stock. Welcome back to Overtime. Ten years ago, a lot of people thought a former CEO of Ford was the right person to take over at Microsoft. Then on February 5th, 2014, this exact date, Bill Gates introduced the board's choice at an employee gathering. This company's had three CEOs. They're all right here. This is all... A decade ago, a little-known engineering executive named Satya Nadella was announced as the new

CEO of Microsoft. And I cannot be more honored, more humbled, and more excited about Microsoft. He was not an obvious choice. Nadella was an insider at a company that had become too insular. A humble and professorial presence. Able to integrate data which exists on a host or a mainframe. After CEOs known for being mercenary. You make a grown man cry.

And bombastic. I can't hear you! And yet, ten years later, Microsoft is neck and neck with Apple for the title of world's most valuable company. With a market capitalization right around three trillion dollars. Some perspective, that means Microsoft today is worth 10 times more than the day Nadella got the job. Along the way, Nadella's changed more than Microsoft's stock price.

In 10 years, he's gone from an unknown quantity to one of the most respected CEOs in the game, balancing roles as engineering leader, high hire, and technology diplomat. Today we are making the commitment that by 2030, Microsoft will be carbon negative. He's also brought Microsoft from being a laggard in search and mobile to being a challenger in the cloud

and an emerging leader in AI. So our job number one is to build the best systems so that you can build the best models. In the process, he shifted the market perspective on how a CEO communicates about mission, competition, and partnership. There's no holding back of anything. It is about being able to excel everywhere our customers are. I've been covering Microsoft and Satya the whole way, interviewing him nearly a dozen times. At this milestone, I'm unpacking his uniquely challenging journey to the top of tech and the new obstacles

and opportunities in a world where rivals and governments are wary of Nadella's Microsoft getting even bigger. Could a small player win today in this space? Cool. You know, it all depends on what happens, right? Which is what's the product market fit that one of these folks find? I was afraid he was about

to name me CEO right there. I first interviewed Satya Nadella on camera in 2013. Back then, he was one of several division presidents at a Microsoft fumbling to find its footing.

He didn't even have one of the divisions everyone externally was focused on. Office or mobile, search or Xbox. He ran server and tools. This is Windows Server and System Center and everything else with this Azure secret sauce inside. I'm getting word in my ear that Steve Ballmer of Microsoft is to retire. Wow. John Fort,

who knows the company well, is on the phone with us. John, what's your take? A few months later, after Steve Ballmer announced he was stepping down as CEO, I pressed Nadella on whether he wanted the job. Would you take the job if it's offered? You know, the Microsoft board, as you said, is working the process. Steve's very much the CEO. I am really, really busy and excited about the enterprise job that I have, and I'll leave it at that. In one of my recent conversations with Nadella, he reflected on those times and how he's trying to keep Microsoft's sense of urgency and focus now role like mine is to really have a sense that you're grounded on two things. Because I feel you have to sort of have that sense of purpose and mission as a company. Be real.

It can't be this abstract thing. Because, you know, especially when you're successful, what happens is you forget like what made you successful and so therefore grounding yourself in a sense of purpose and mission that's the first thing I did I think ten years ago is to say look it's a mission is to empower every person and every organization on the planet to achieve more saying it is one thing but making it real every day in terms of the products we build, the markets we serve, the attitude we all have with our partners and customers. That's been the hard, hard struggle. The other one is culture.

Right. I distinctly remember when we became the largest market cap company in the late 90s, you know, walking around the campus, you know, including me, thinking, God, we must be God's gifts to sort of mankind and accept. You know, that's the day you think that is when you should be scared, because ultimately companies really have to be grounded on that. We are only going to be successful if we can meet those unmet, unarticulated needs of customers. That means you can't be know-it-alls, but you have to be learn-it-alls. So you don't think that now because now you're the second largest. Yeah, that's right.

It's always great to be second largest. There's a lot more to be learned. But you're pretty close. You're pretty close. But quite honestly, it's framing that learn-it-all versus the know-it-all, right? Because what came before, like today, it may be whatever, whether it's the stock or the market cap or what have you. But there's no guarantees. And especially in tech, there's no franchise value. That's kind of how I remind myself of this, is nothing lasts forever.

A shout out to Fahima Alali and Ed Fettner, who helped me craft that piece. So that conversation there at the end where Nadella says he's reflecting, says nothing lasts forever, that was three days before the OpenAI board ousted Sam Altman. And that's why you're hearing it for the first time now, because the news cycle outran it. And that's the challenge of this moment Nadella has to navigate in AI right now. It's changing really fast. I know it's going to last forever, this documentary. I mean, it's fantastic, John. It really is. I like this idea of learned-it-alls as well. But I think probably the most striking thing to me is the fact that he was running server and tools,

and to your point, like sort of an unknown quantity outside of Microsoft. How did they, I mean, obviously it was a wonderful choice when you look at what's happened with the stock and what's happened with the company, but how did internally management decide, this is the guy, this is the guy that we're going to put at the helm, even though not as high profile or as well-known? It was tough for the board, and Nadella writes a bit about this in his book hit refresh that came out I think it was back 2016 2017 at one point that the board asked him well do you really want the job and he said well I want the job if you want to give it to me and they kind of said well we kind of expect somebody who's going to be more aggressive about like yeah I'm

the one person who can do it. And Ballmer pulled him aside and said, don't go changing now. This is who you actually are. Be yourself. They're going to have to pick you. And so it was a shift, not only for the rest of the world, but for Microsoft to understand that all leaders don't sound and look the same. I think in this case, the challenge ahead in this AI era

is what's Nadella going to do when inevitably his strengths turn against him, right? He's good at partnerships, but then that open AI situation was one where a partner went and did something he didn't expect and Microsoft's reputation was attached to it. He navigated that well.

But if they make a, when they make a technical mistake, because every company, how quickly will they be able to recover? Maybe that's what we have to look out for, for the next few years. All right. We'll be watching and you'll be covering it. In the meantime, fun chatbots and many more at Microsoft. Microsoft's got a few fun chatbots, I suppose. Now I will have more on Satya Nadella's decade as CEO of Microsoft tonight on Last Call at 7 p.m. And if you want to watch the entire piece, you can scan that QR code right there on your screen.

Follow Overtime on LinkedIn. There you're going to find the full piece, a lot more exclusive content as well. All right. Well, now to something you don't hear every day, a CEO taking a pay cut to reduce expenses. Steve Kovach has the details. Steve. Yeah, Morgan, this is coming out of a new AK filing for Microchip Technology. Their CEO and president, the board just approved 20 percent salary cut for president and CEO Ganesh Murthy and plus a handful of other executive officers at the company. As you said, part of a cost reduction, also reducing the cash compensation by about 20 percent for members of the board. We see shares

not really reacting to this, but again, like you said, interesting thematically to see the CEO take a pay cut amid so many tech layoffs, guys. Yeah, often a sign that more cuts could be coming for others as well. Steve, thanks. Up next, Mike Santoli is going to look at what a rebound in the economic surprise index could mean for the market and the economy. Plus, a name that was higher today in a down market, Tyson. Those shares popping, although well off the highs of the session after an earnings beat. Up next, the company's CEO on how the shift to less expensive proteins is helping bring home the bacon.

It's time for a CNBC News update with Courtney Reagan. Courtney. Well, President Joe Biden met with members of the Culinary Workers Union in Las Vegas earlier today and congratulated them for reaching a tentative agreement with six more hotel casinos and calling off a strike for another. He visited with union members ahead of Tuesday's primary election after spending the weekend at campaign and fundraising events. The mayor of Dearborn, Michigan, ramped up security measures this weekend after the Wall Street Journal published an op-ed that he is calling, quote, extremely inflammatory. The op-ed, which called the city America's jihad capital, suggested that Dearborn's residents and leaders support Hamas and Hezbollah and has drawn sharp criticism from Muslim advocacy groups and elected officials.

In a statement, the author of the op-ed said it was not political, saying it is about national security. And some of NBA All-Star events in Indianapolis will be played on a full video LED court, the league said today. Three of the events will be on the state-of-the-art glass court, while the actual all-star game will be played on a traditional wooden court. That kind of makes me a little dizzy. John Morgan, back over to you. Me too. Strap on your seatbelt. Courtney Reagan, thank you. Thanks. Tyson Share is jumping after America's largest U.S. meat packer posted a beat this morning. Fiscal Q1 revenue growing slightly, net income falling 66 percent, but that was better than expectations. Improvements in both chicken and pork offsetting ongoing challenges in beef, which posted an operating loss. Tyson raising its

fiscal 2024 outlook for chicken and pork as it bets that consumers will continue to shop for these cheaper meats. CEO Donnie King telling me he's, quote, cautiously optimistic about 2024 as Tyson continues to modernize operations, cut costs, lean into its packaged food business, which had a strong quarter. On chicken, grains are coming down, but a lot of the improvements stemming from operational changes, that will continue. On beef, Tyson's largest segment by revenue. King saying it's a volatile market for pricing and futures. There's no data to support heifer retention,

even as cattle herds are at a seven-decade low, according to the USDA. On pork, working through what's been an inventory glut by, quote, moving products up the value chain. Case in point, a newly opened bacon processing facility that adds capacity for Jimmy Dean and Wright Brand Bacon. It's a key focus for King, boosting the packaged foods business, which includes namesake Tyson, brands like Hillshire Farm and Ballpark. King telling me, quote, we've seen softness in the retail channel, but our brands have performed well

with core brand share near record levels, food service business regaining market share after lost ground in the pandemic. Bottom line here, consumers are cost-conscious. As beef prices have climbed, they've turned to less expensive proteins. It's a similar scenario in packaged foods where these trusted brands like Tyson and some of the other brands under the umbrella are benefiting despite what is a sluggish macro environment

in the grocery store for consumers. Yeah, because you can only play chicken with inflation for so long. Well, shares are up 2%. Investors aren't playing chicken. All right. Tyson beat expectations just like the U.S. economy is beating consensus forecasts for a slowdown. Mike Santoli is back with a look at whether current strength is a blip or whether markets can finally embrace the stronger for longer narrative. Mike? Well, John, the strength has been pretty persistent.

So here's the U.S. Economic Surprise Index from Citigroup. And remember, when this is above zero, it means that economic data are coming in better than forecast on an average basis. And it's been like a year and a half since we've spent any real time in negative territory. Most years have at least a couple of dips into negative. So you see here we bounced off that pretty hard. We got the jobs number on Friday. Today, ISM services. So what this suggests is that economists still aren't quite raising their forecast in line with how strong the economy has been.

They keep expecting the slowdown. They keep expecting the trend to moderate. So far, market's good with it, even if it means that yields maybe go a little higher. We'll see if we have to get tested with still higher yields that are outside, let's say, this one-month or six-week range. Up next, thank you, Mike. HSBC Global Private Banking and Wealth's chief investment officer tells us where he sees buying opportunities in today's pullback. Stay with us. Welcome back to Overtime. Stocks closed in the red today, though well off session lows.

Here to share his outlook on the market and where he sees opportunity is Jose Rasco, chief investment officer at HSBC Global Private Banking and Wealth. Great to have you back on the show. And that's exactly where I'm going to start with you. In a market where, as we were having this conversation earlier in the hour, you could argue that it's priced perfection. Is that how you see it? Or is there opportunity here in equities specifically? Well, we think there's opportunities longer term. And no question, the fundamentals still look very supportive for U.S. equities. But in the short term, yeah, we think the market has priced in too many Fed rate cuts and too quickly. And we still think that there's going to be a repricing of earnings expectations

this year. And once we get through that, we think the longer term fundamentals are going to make a lot of sense. And as the Fed begins to move, we think they're going to move and begin to cut rates in the second quarter. As they begin that journey, we can price that fully into the market. And I think the market has a lot of upside. Okay. So would you be buying equities now or would you be waiting for a pullback? And if you would be waiting for a pullback, where else would you be putting money to work right now? Well, our number one overweight globally is fixed income, where we think, you know, we've seen the peak in policy rates in most major developed markets, for sure, and many emerging markets as well.

So if you've seen the peak in policy rates, you've probably seen the peak in market rates. And with continued disinflation, that seems like a pretty good bet. So returns on fixed income should be pretty solid. That's something we're focused on with clients is locking in those longer term yields while they can still get them. That's number one. Number two, in terms of equities, the U.S. is still our number one overweight. No question about it. And the way I would look at that is wait for the what we think is going to be a bit of a consolidation here. But there are certainly opportunities to dollar cost average your way into better positions on stocks that have not performed up to the pace of the rest of the market. And so there are opportunities out there from the broader market perspective. We think,

you know, hold off and wait for that consolidation. And we think coming pretty quickly. Jose, a lot of investors, retail investors have gotten used to portfolios that are less traditionally balanced, not 60-40, more weighted toward equities. You're overweight bonds right now. And I wonder how you're thinking about that peak in policy rates and how much investors should be perhaps running to catch up with what was more traditional balance and how much maybe people just need to stay in more risk in these days where things like artificial intelligence are seeing some massive growth for certain companies. Yeah, it depends on your risk tolerance, obviously. If you're going to be a balanced investor,

globally diversified, then you want to increase your weight in fixed income, which probably got skewed out of balance. So that's something. And this is a great opportunity to do that as yields have, in fact, backed up. And while we've rallied of last couple of months, market volatility is going to remain because inflation, we think, in the next couple of months is going to be spotty as we head toward the spring. Food, energy prices could cause a lot of bouncing up and down in terms of the inflation data in the U.S. and abroad. And therefore, that's going to give us a lot of bouncing up and down in terms of the inflation data in the U.S. and abroad. And therefore, that's going to give us a lot of volatility in fixed income, which is going to generate opportunities for investors to go in and acquire those assets. So is it mostly for the

yield long term then and locking that in now? Or how much of it is based on that expectation that because we are where we are policy-wise, you're not going to lose that much on just the price side either? No, look, we think the yields make sense. And as prices go up and yields go down, we think there's total return that's worthy of consideration and fixed income, no question about it. And if you are a less risk-averse investor, equities make a lot of sense to us in two parts of the world. Number one, the U.S. and Mexico, we think that relationship is very strong. And remember, one of the things everybody's focused on is the cyclical unwind due to higher interest rates, right? And that's about to reverse itself over the next couple of months as the Fed

begins to cut. The other side of this is secular forces. And those secular forces, we have four major themes I continue to harp on. The tech revolution is just beginning, innovation in tech, nearshoring, onshoring, and the reindustrialization of the U.S. I still focus on those major tailwinds for the U.S. economy that I think make, if you're less risk averse and if you like equities, great time to look at where we are from a long-term perspective. Well, yeah, a lot of our viewers are, so we appreciate it. Jose Rasco, thank you. Thank you. Up next, a look at some of the other earnings movers that should be on your radar

as we count down to the analyst calls from NXP and Palantir. Over time, we'll be right back. Up next, a top analyst tells us what he wants to hear from NXP semi-executives during their conference call tomorrow morning. Shares are up 3% right now. Stay with us. We have some breaking news out of the pharma space steve kovac is back with the details steve hey morgan yeah another big pharma deal coming out this time novartis announcing they are planning to acquire morphosis that's a company that uh is going to make some cancer

drugs for them they say it's going to strengthen their oncology pipeline uh the deal is valued at 2.7 billion euro in cash you see shares shares of Morphosis up about 2.5% and a big old unch there for Nervatus. I'll send it back over to you guys. All right, Steve. Thank you. And now let's get another look at NXP Semiconductor. NXPI, those shares are up about 3% right now after posting a beat on the top and bottom lines with the revenue outlook for Q1, slightly below estimates. Conference call tomorrow morning.

Joining us now with what to expect is Angelo Zeno from CFRA. Angelo, strong day for OnSemi. You know, a pretty good report from NXP. It's been mixed what we've been hearing about automotive, which is one of NXP's key markets. But what are your takeaways here? Yeah, no, you're absolutely right. So it has been fairly mixed this earnings season, you know, when you kind of start taking into account some of the comments made by Texas Instruments and others.

But, you know, overall on an NXP look relatively in line, especially the guidance also looked in line. But as far as NXP's numbers are concerned, I think the biggest takeaway, at least on the surface, is kind of what the channel inventory looks like. So at about one point, one and a half months, long term average is more target is about two and a half months. And the expectation, at least going into Q4, was that they were going to build it a little bit closer to one point six months at the very least. So the fact that it kind of stood in check, I think kind of at least gives you some indication that end demand looks like it's holding up fairly well, especially on the auto and industrial side of things, especially in the industrial side of things, about 80% of their revenue is actually tied to the channel. So you

kind of look at this and I think at least on the surface, it's a pretty good number, I think, for investors out there. Semiconductors are complicated right now. On one end, you've got the AI plays. On the other end, you've got everybody else, microchip top executives, taking this 20% compensation cut. It's usually a sign that they're concerned about cost levels based on demand headwinds. So on which side of this do you think we fall here with NXP? Yeah, and I think Microchip's kind of a good one to throw out there, too, because they're a name that looks like they kind of stuffed the channel a little bit too much when you kind of look at some of the guidance that they provided and some of their recent numbers. So, you know, in our view, and that's more of an industrial type play out there. In our view, NXP continues to be our

favorite name, at least within the automotive channel out there because of the kind of components that they sell within that channel and the content growth story that you have within NXP. The fact that we're looking at about, you know about 10% or so annual content growth here long term. So that said, even if you were to see some sort of kind of hiccup on the production side of things, this is a company that should continue to do fairly well. And given the flexibility, again, that they have within the channel, it's a name that we think can kind of navigate through some uncertain times, at least on the auto side, relative to some of their peers out there. I wonder if we should be talking more about the role that China is playing with some of these chips, for example, so-called legacy chips and basically flooding the global market,

potentially pushing prices down, bigger revenue or bigger inventories as well. It's something the Commerce Department is looking at. Is this is this a real risk for an NXP or no, not so much? You know, it is a risk out there, I'd say, for kind of some of these trailing edge type companies out there, some of the analog players. But that said, you know, you look at kind of NXP out there and the good thing about them is, you know, they're a lot more kind of asset light in nature relative to some of the other kind of analog plays out there. So they can kind of leverage some of the, you know, the foundries out there in areas like China and what have you,

if there's kind of, you know, a requirement in certain regions out there to kind of have an all China made type of, you know, car or device out there. So NXP, we think given their, their kind of structure out there, probably a little bit better position than others out there. But you're absolutely right, Morgan. It is a risk. Okay.

Angelo Zeno, thanks for joining us. Shares are higher right now. That's basically going to do it for us here. We've got another busy day of earnings tomorrow to look ahead to. We do indeed. Fast Money starts now.