Closing Bell - Closing Bell Overtime: AI Stock Boom Not Slowing Down; Debt Ceiling Talks Still Open 5/30/23

Episode Date: May 30, 2023

More gains in tech but the Dow closed. Unlimited Funds’ CIO Bob Elliott and Macquarie Group’s Thierry Wizman break down the market action. Earnings from HP, HPE and Box. Roger Ferguson, former Fed vice chairman, discusses the latest developments in the debt ceiling talk after an initial agreement was struck between President Biden and Speaker McCarthy. Oil fell under $70 a barrel for the first time in nearly a month; Citi’s Ed Morse discusses the recent weakness across commodities. Evercore’s Amit Daryanami breaks down earnings from HP and HPE. Plus, Pangaea Policy’s Terry Haines talks posturing versus reality in the next 24 hours of the debt ceiling bill.

Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Coming up this hour, we are watching software and hardware as we await earnings results from HP, HPE, Box and Ambarella. We're going to bring you all of those numbers as soon as they cross. Plus, we're going to talk to former Fed Vice Chair Roger Ferguson about his read on the Fed's next move as the odds of a June hike go up, plus his take on the debt ceiling deal. Let's begin with the debt ceiling. The House Rules Committee meeting this afternoon ahead of an expected vote tomorrow on the deal struck by President Biden and House Speaker McCarthy.

Eamon Javers has the latest for us. Eamon, is this going to get out of the Rules Committee? Hey there, John. We think it will, but take a look at these live pictures, and you can see the House Rules Committee is meeting right now. Republican leaders opened up the hearing by talking up the idea of compromise. In a true negotiation, you always get less than you want and give up more than you'd like. But with the passage of the Fiscal Responsibility Act, we'll

responsibly lift the debt ceiling and avoid a default that would devastate the American economy. But there's been a lot of discontent among the most conservative members of the House Freedom Caucus about this debt deal. So we're watching this hearing to see if any of that causes problems for the bill. Some of the unhappy members have talked about the possibility of forcing McCarthy out of the speakership altogether. That made Speaker McCarthy defend the deal on Capitol Hill just a short time ago. Here's what he said. How are we outsmarted? The largest cut in the history of Congress, the biggest ability to pull money back.

We got work requirements for welfare where the Democrats said was a red line. We've got NEPA reform for the first time in 40 years. We took a Trump executive order for PAYGO against the administration. Now, John, this evening, the entire House Republican conference will meet on Capitol Hill, and that's going to give McCarthy a chance to tamp down some of this grumbling from his fellow Republican colleagues. We'll see if that works. The vote could be on the floor tomorrow afternoon. We'll watch and see for it. Back over to you. Okay. Eamon Jabbers, thank you for that. Let's bring in two more voices on this in the broader market. Joining us now is Unlimited Funds CIO Bob Elliott and Macquarie Group's Terry Wiseman.

Good afternoon to you both. Bob, I'll start with you. I mean, the S&P basically ended the day flat, 42.05. But it was a mixed picture. How much is the market baking in and absorbing this debt deal and all of this now, I guess, hashing out, you could say, in D.C. among lawmakers? Well, I think a lot of the benefit to the markets that came from the acknowledgement that the debt deal was going to finally come to fruition happened last week. And so I think in many ways, what we're seeing right now is the market's taking a breather and digesting the actual news on following a relatively sizable lift before. I think the more interesting part is the market action in the bond market, which really saw a pretty good bid today, which was interesting in the context, even quite

a ways out the curve where there wasn't that much concern about immediate default the way there was in T-bills. And I think that reflects the fact that there really was some underlying concern in the bond market. Part of the sell-off that we saw in the back half of last week and recently was driven by debt ceiling concerns from a variety of different investors. Yeah, Terry, we did see this relief rally in Treasuries. I just wonder if it's going to be short lived because now all the attention is focusing on the Treasury general account and the fact that you're going to have to see this big issuance to refill the coffers there and that's going to suck liquidity out of the system. and maybe therefore we see a lot more volatility in the bond market moving forward. Yeah, well, first of all, I do agree. The more interesting

dynamic is in the bond market and fixed income. Look, what's been happening over the last few weeks, I think, is that the traders, fixed income traders, bond traders, have actually gotten ahead of the prospect that there's going to be quite a lot of net new issuance coming out of the Treasury. Estimates range from anywhere from $250 billion to as high as $1 trillion to be issued over the next few weeks. They got ahead of this, which means this is the reason why Treasury yields have been going up so much over the last two and three weeks. In fact, you can see this by looking at the positions of traders reports on the CFTC. They show a very massive short position in bonds right now. Now, when I see a massive short position in bonds, I'm inclined to think, well, no, we might get a short squeeze here. It's very possible, even though we do get this massive amount of issuance coming out of the Treasury,

the market is so short the bond right now that if they just normalize their positions, cover their short positions, we could see yields lower, not higher, despite the flood of this issuance. How low? Maybe the 10-year goes from 3.7 to 3.6 or maybe 3.5 before we finally get all of the short positioning washed out of this market. Interesting. Bob, are the equity markets and fixed income position really differently right now, considering we've got these debt ceiling hopes and the AI excitement that was affecting some stocks today, but we also have a Fed that's looking more likely, a lot of people think, than a week or so ago to hike again in June, right? Yeah, the Fed tightening expectations have really shifted considerably over the course of the last couple of weeks. You know, it wasn't that long ago when basically no expectation of a hike was priced in. And now it's more than 50 percent.

And so you see that picture. And I think whether you look at the stock market or you look at the bond market, what we're seeing is both are indicating a recognition that the U.S. economy is continuing to plug along at a reasonable pace, a pace that is strong enough to continue to keep labor markets tight, and probably more importantly, strong enough to continue to keep labor markets tight and probably more importantly, strong enough to keep inflation reasonably elevated relative to the Fed's target. And so both stocks and bonds are reflecting that, that we probably need a bit tighter policy on a forward looking basis than than where we were just a couple of weeks ago. OK, Terry, does this the multiples in equities right now? I know you said bonds are more interesting, but do they look like they reflect that kind of expectation

that I guess inflation is pretty stubborn and therefore the Fed will have to continue to battle it? And how does the jobs number factor in, you think, to that percentage likelihood that the Fed needs to hike again in June? Well, look, if all the Fed, if all that's going to happen is that the Fed hikes and yet we don't see a recession or a significant slowdown in the economy, then, yeah, you can easily make the case that stocks are fairly priced here. I think the decision on whether one owns stocks now or chooses to stay away should really turn on not on whether the Fed hikes or not. It's on whether when the Fed does hike, is that going to put the economy in a tailspin? We think it will. We're already seeing signs that the economy is slowing. I know that there's plenty of indicators out there that

suggest that the economy is not slowing, but those tend to be coincident indicators of the economy. If you look at the leading indicators, they do suggest the Fed has already tightened quite a bit because they're signaling a recession coming. They are at very low levels right now. So I'd be concerned about the Fed hiking to the extent that I think it's going to cause a recession. Okay. Terry, Bob, thank you. I do want to mention that Hewlett Packard Enterprise, Ambarella and Box are out. We are going through those numbers now, I believe still waiting on HP Inc. But now CNBC senior markets commentator Mike Santoli joins us from the New York Stock Exchange.

What are you watching, Mike? Well, John, initially, just a snapshot of where the overall market finds itself here. The S&P 500 had nosed above as of Friday, that 4,200 level. And it's just interesting upward grind, very kind of grudging action right here that has developed over the last several weeks. It's sort of like a mini shallow uptrend within this bigger, but still not particularly exuberant uptrend coming off of October. Now, as everybody keeps talking about, a lot of the upside does owe to a handful of very large market cap stocks. But also, the rest of the market is not exactly falling apart, making new lows. So, so far, it's kind of a halting effort at making a new nine-month high.

Today was obviously very much an indecisive-type moment there. And take a look at one measure of exactly how split this market has been. This is called the CBOE, Implied Correlation Index. It's basically the market's expectation of how much big stocks will move together as one or move independently. And right now, when this is very low, it means the market is assuming that it's going to continue to be one where stocks go their own way as opposed to hurting in the same direction. And this right here is around November of 2021, which was the peak in the NASDAQ. That also was a very narrow rally.

So just take that for what it's worth, that oftentimes you will see a narrowing out of a rally before you get some kind of pullback action. But also, guess what? This is the stock picker's market people claim they want to see a lot of times. It doesn't mean it's easy to pick the right stocks, but it does mean that they're moving on their own factors as opposed to one of those big kind of risk on, risk off pendulum swings, guys. Mike, is that a response to certain big stocks rally? I'm thinking about NVIDIA, which we've been talking about for the past few days. Is that in

part what causes, you know, that index to go down? Because, I mean, it's already moved separate from the rest. And I guess people expect that at this point it's more likely. And I can think of a few others that perhaps are more likely to move in a different direction. Absolutely. It's a response to exactly that type of action where you have a relatively small group of big, consistent winners over a period of time. And then the rest of the market is not following along with it. So you have that along with the fact that it really has not been one of those huge macro driven markets, not massive swings in yields and currencies and Fed expectations, even though those things are moving at the margin. It hasn't really been the driving factor of huge

swings within the equity market. So all that boiled together is people pricing in sort of this continued independent action among big stocks. All right. Mike Santoli, we'll see you later this hour. Thank you. Hewlett Packard Enterprise earnings are out and Frank Holland has the numbers for us. Hi, Frank. Hey there, Morgan. Shares of Hewlett Packard Enterprise is down almost 8 percent right now after a miss on revenue, revenue about 5% below estimates, but there was a beat on EPS. Profit 4 cents above estimates. However, its current quarter guidance is light on revenues with profit in line with expectations. Compute is the core business of this company. It saw a big miss, revenue of $2.761 billion compared to estimates of $3.22 billion.

Important to note, it has a segment that's focused on high-powered computing and artificial intelligence. That segment beat estimates with revenue of $840 million compared to estimates of over $801 million. So I got a chance to speak with CEO Antonio Neri. He told me in part, there is strong demand for the company's AI offerings and he expects a spike in business in coming quarters, saying in part, HP has unique intellectual property that allows us to deliver AI at scale and AI inference. And because of that IP and the software to be able to run these models, again, he expects more demand in the second half of the year. So I also want to focus on two other quick things. HPE with strong beats when it came to gross margin, operating margin,

key metrics in this so-called year of efficiency. But again, shares of HPE down big, down now 6.5% after a miss on revenue and a beat on EPS. There was also a raise on guidance, but obviously investors focusing on some of the misses here. Back over to you. Yeah, Frank, high performance computing, not balancing the rest out. Thank you. Ambarella earnings also out. Christina Parts Nevelis has those numbers. Christina. Yeah, the company posted a smaller than expected loss of 15 cents adjusted,

which was a little bit better than what the street anticipated on revenues of 62.1 million. So we can call it in line. We can say it's a slight beat for the top and bottom line. But what we're looking at for Q2 revenue guidance, that range is coming in a little lighter than expected between 60 and bottom line. But what we're looking at for Q2 revenue guidance, that range is coming in a little lighter than expected, between 60 and 64 million. The street was anticipating 67.2 million. So there is a stark contrast there. The company itself also saying in their press release that the cyclical headwinds persist and continue to put pressures on their financial

results, but they're taking their inference AI strategy to the next level. Keep in mind that Ambarella makes system on a chip specifically for cameras. So they're used for high advanced cameras as well as those that are in cars. That is a larger market for them. But as we're seeing with this results thus far, Q2 revenue guidance coming in a little lighter. They provided a gross margins range too, but I have no number to compare. That would be 62.5 to 64.5 percent gross margins for Q2. So overall, revenues fell 31 percent year over year. Adjusted loss coming in at 15 cents per share, which is a little bit better than what the street was anticipating. Yeah, big move after hours.

That stock down more than 13 and a half percent. But that just, Morgan, takes it down to the level where it was on Thursday, the 25th. Yeah, we've seen such a huge move higher in semi-stocks overall on the back of NVIDIA. And the SMH has certainly been testing some key levels because of that. Yeah. All right, well, after the break, we're exactly two weeks away from the Fed's June meeting. The odds of a hike are on the rise. We're going to break down those odds with former Fed Vice Chair Roger Ferguson.

And later, does NVIDIA's rapid rise to $1 trillion in market cap have echoes of the dot-com bubble? We're going to discuss when Overtime comes right back. Welcome back to Overtime. Box earnings are out. Frank Holland has the numbers. Hi, Frank. Well, hey, Morgan. Shares of Box moving just about 3% higher right now after a beat on revenue and a beat on OPS.

Profit was 5 cents above estimates. The company also posted strong beats when it came to margin. Q1 gross margin is 77.9%, well above the estimate of 76%. Also got a chance to speak with CEO Aaron Levy. He said he expects AI, it's a theme here, obviously, he expects AI to be a tailwind for the company as other companies need more storage for their AI capabilities and offerings. Also looking at guidance, we look at full year revenue guidance. The revenue guidance was just slightly below estimates. However, EPS guidance was above estimates. The bottom end of the EPS guidance was $1.44 for the full year. That was the same as the estimate top

range at $1.50. So again, shares a box beating estimates when it came to revenue and EPS shares up now three and a half percent. Back over to you. And Frank, it looks like the guide with the range between $2.60 and $2.62 might be a little bit better than the expectation of 260. So maybe a little bit better there on the revenue guide as well. Thank you. Now, the fate of the debt ceiling deal still up in the air as it awaits passage in Congress before the June 5th deadline. And a week after that, the Fed will be on the clock for its June meeting with the odds of a hike taking higher in the last week or so.

Joining us now to discuss is former Fed Vice Chair Roger Ferguson. Roger, good to have you. Tell me how all of this data is lining up in your mind and what kind of a wage number we need to see on Friday for folks you think to feel like a pause would be reasonable at this point? Well, look, I think the data lining up to show that inflation is remaining relatively sticky and certainly above the Fed's 2% stated target. You know, I think the wage number on Friday, to some degree, is not going to be driving these outcomes. I know the market will pay a great deal of attention to it, but it's just one of many, many pieces of data that have come in. And more importantly, therefore, it's important to see the bigger picture, which is that inflation

stuff is remaining relatively sticky. What does that mean for the upcoming meeting? Well, as you've observed, the odds of a hike in the market's mind seem to have gone up. I think that's a safe reflection. It's going to be a very, very close call. But even if they decide to take a pause now at this upcoming meeting, the market should not interpret that as being the end of this cycle of hiking. RAY SUAREZ. Do you think they can afford to take a pause if Friday's number is hot on any of the reads, given the PCE number that we got a few days ago? DAVID BATTS, No.

If the Friday number is hot, I think it obviously reduces the odds of a pause. Even if they decide to take a pause, I think they're going to signal it's just to see exactly what the state of the economy is, and a pause is not going to be the end. So I think markets should be set up for maybe a slightly more hawkish Fed than had been expected maybe a couple weeks ago, with either a move or what I would describe as a hawkish pause, i.e., pause just to see how things are playing out, not a pause that's a prelude to an end necessarily. Yeah, we know all the turmoil from the regional banking situation of the last couple of months is still winning its way through the economy and adding to tighter credit conditions,

although the full impact has yet to be known. I wonder what you think, assuming we get a debt ceiling deal this week, I wonder what you think the impact is going to be of Treasury having to replenish its cash balance. You've got analysts putting numbers out there of as high as a trillion dollars of bills that are going to need to be issued by the end of Q3. And Bank of America has estimated that the impact that's going to have on liquidity in the financial markets could be the equivalent of a 25 basis point hike by the Fed. So again, another area of tightening that perhaps hasn't been fully appreciated yet. How do you see it? I agree with that. I think there is some uncertainty of, as I listened to colleagues, as I listened to friends and former colleagues on the board,

as I listened to bankers, I think the question of how much credit tightening is still left in the pipeline is one that's a big question mark. Most people would say thus far we haven't seen dramatic effects from credit tightening. We expect some, obviously. You add to that the possibility of market-driven rates going up as the Treasury goes out to borrow. And so all of that might suggest some wisdom in taking a pause just to see how this credit tightening and higher interest rates play out over the next couple of quarters. So that's one of the things I think will keep the what I'm describing as a hawkish pause on the table, a recognition that more is to come in the

credit tightening process. Probably not draconian, but it might be wise just to take a moment to see how that plays out. I don't know if you've looked at it yet, but the San Francisco Fed put out a report looking at the impact of tight labor markets on core PCE inflation and actually found in this report today that labor cross growth is responsible for about only 0.1 percentage point of recent core PCE inflation. As we have this conversation about the jobs report on Friday, about how sticky core inflation and services inflation is right now and that it's becoming entrenched in the economy, is a loosening of the labor market going to be enough to actually bring that back down to

a 2 percent target? Not necessarily. I mean, I think part of the challenge is the inflation rate appears to be stuck so far above 2 percent that it's going to be a very gradual and slow process to bring it back down. That's one of the reasons that I have been saying that the markets I think have been so disconnected from the Fed in the expectation of you know a reversal towards the end of this year towards a loosening mindset. I think this inflation is relatively sticky certainly above the 2% target. It's going to take some work to get it back down and the question now is one of tactics from meeting to meeting. But certainly I think markets should not expect a Fed to take a dramatic swing from tightening

to easing. I expect, as I've said several times, for rates to be higher and held longer than perhaps the market has been expecting. MS. Yeah. A lot of different inputs to factor in here. Talk about data dependency. Roger Ferguson, thank you for breaking it all down for us. HP earnings are out as well. And Frank Holland, who's now doing triple duty, he has the numbers

for us. I mean, Morgan, they do call this show overtime. All right. So looking at HP Inc. shares right now, down pretty big right now, down about more than a percent and a half after a miss on revenue, a beat on EPS. Profit was four cents above estimates. The company also raised its full year EPS. Part of this down move for the stock, however, might be the miss on personal systems. That's commercial and consumer PCs. However, there was a pretty strong beat when it came to margin again in that so-called year of efficiency. I spoke with CEO Enrique Lores, who forecasted a second half upswing when it came to PC shipments. He also said the company is working with silicon providers and software makers like a Microsoft and a Google to change the architecture of PCs, building AI into PCs and AI

processing capabilities. So he said, if you're a small business, you have an opportunity here where you don't have to use the cloud. He believes that's a chance to what he called refresh the PC market going forward. But again, as we mentioned, shares of HP Inc. down more than a percent right now after a miss on revenue and a beat on EPS, even with that full year guidance raise. Back over to you. All right. Frank Holland, thank you. Don't miss Jim Kramer's exclusive interview with HP's CEO. That is coming up at 6 p.m. Eastern on Mad Money. Coming up on this show, though, energy is among the worst performing S&P sectors today as oil prices tumble. We're going to talk about what's behind the move with Citi's global head of commodities research.

Overtime, we'll be right back. Welcome back. Oil sliding today down 4% with WTI dipping below 70 bucks a barrel. First time in almost a month. This amid uncertainty over the debt deal and OPEC Plus talks. WTI is on pace for its worst month since September. Joining us now is Ed Morse, Citigroup's global head of commodities research. Ed, great to have you on.

What do you attribute this weakness to? Well, the weakness is based on flows that are de minimis. We don't see very much in the way of open interest. Open interest is about a 10 to 13-year lows, in fact. So a very limited amount of move of managed money can have a very big impact on prices. A lot of people think it has to do with what's happening with the debt ceiling. I don't see that as a causal connection. I think there are a bunch of other things happening. We've had very weak demand growth year to date globally, weaker in China than expected, weaker in the U.S. than expected. We had kind of a very disappointing

Memorial Day weekend when people do whatever they can and looking at mobility on an instantaneous database. So I think that on the mobility side on the one hand and the chatter about an OPEC meeting coming up this coming weekend is what really has done it and doubts that are in the minds of a lot of people now that OPEC plus countries will do anything. So I think those are the two major factors at work, a weaker than expected market and chatter about OPEC having said they might do something, but probably not. Do you believe that OPEC is going to do something? I know there's all these concerns about Russia oversupplying. You've got that country essentially trying to produce and export as much as it can to offset the economic blow that's happened there.

But then we know the Saudis have been wanting to tighten and keep prices elevated. So is this really a sit on your hands, do nothing, OPEC plus type of meeting? Or could we be surprised? Well, remember that it's not all of OPEC Plus. It's only really nine countries altogether who are part of this agreement. It's all a voluntary agreement. There will not be nine members in favor of a further cut. That's almost a guarantee. The question is who might cut and for what reason? And I think the reason will be where prices are when it comes to this weekend, where prices are when it comes to the close on Friday.

If we see WTI at the $60 range and Brent getting closer to $69 than to $75, I really think that there is a likelihood of an incremental cut taken by at least four of the nine countries that were taking part in the cut that was scheduled for May. But Russia probably is not one of them. Ed, was there an expectation that Memorial Day travel would be even stronger than it was, or is this in any way reflective of expected demand slowdown in the second half with all this recession talk looming? No, I don't think the second half had to do with it. It really was, we had a significant build of inventory globally with high-frequency data, more than 20 million barrels worth in the first two weeks of May. And then for the last couple of weeks, we've seen really significant drawdowns

of U.S. inventories, including gasoline. So people were thinking that this was an indication that we were seeing the driving season that was really reappearing and reappearing before Memorial Day. The one doubt about it is the degree to which refiners were, you know, putting oil into retail outlets in anticipation of Memorial Day. But the high-frequency data were much more disappointing than the flurry that we had for a couple of weeks about how U.S. gasoline demand is really looking good for the first time in a long time. Ed, very, very quickly, you got some permitting reforms

maybe not as ambitious as expected. You've got a pipeline poised to be approved with this debt ceiling deal. How, I realize it might not happen overnight, but how positive is that for something like, say, NatGas? Well, the NatGas issue is, that would be positive in a longer term period of time. NatGas is kind of trapped at the moment. Yes, we've seen drilling coming off, but not off enough to keep us from keeping on producing more. Industrial demand is down. And the likelihood of us reaching tank tops, so to speak, by the end of the

injection season is looking high. We have reports about weather conditions with lower than normal temperatures, with a lower probability of a big hurricane season with El Nino effects happening in the market. So the signs are that it's going to be a weak natural gas season coming up this summer. All right. Ed, thank you. Thanks for having me. Good to see you again. Equi-Chance finished the day up 35 percent on that pipeline possibility today.

OK, now let's get a news update with Bertha Coombs. Bertha. Thanks very much, John. The trial for Robert Bowers, a truck driver accused of killing 11 people at a Pittsburgh synagogue, began today. Bowers faces 60 counts in the 2018 shooting at the Tree of Life Synagogue the deadliest anti-Semitic attack in U.S. history and could get the death sentence if convicted. The defense attorney acknowledged Bowers planned the attack, saying he shot every person he saw in her opening statement. LGBTQ plus activists calling for new strategies to promote equality with California State Senator Scott Wiener saying, quote, You need to be our ally, not just when it's easy, but also when it's hard. This comes after Target said it had removed products and relocated pride displays last week to ensure the safety of its employees. And Goldman Sachs is preparing for another round of layoffs amid a deal-making slowdown,

according to a source with knowledge of the bank's plans. The company is expected to trim less than 250 jobs in coming weeks. In January, the bank cut about 3,200 positions following an initial round of layoffs last September. John, back over to you. Bertha, thank you. Up next, NVIDIA officially joined the club of stocks that traded above a trillion dollar market cap after it rose more than 170% so far this year. But is that rapid acceleration sustainable?

Mike Santoli checks the charts next. Welcome back. Supermicro shares soaring again today, up almost 7% on new product announcements out of Computex in Taipei and some debt ceiling hopes probably. Supermicro has more than doubled in a month. It makes high-end computing systems, counts NVIDIA as a major supplier. I spoke to founder and CEO Charles Liang about demand for power efficiency along with these powerful AI-capable systems. Lots of new products. That's why I say we work with NVIDIA very closely since 20 years ago. And Jensen has been my old and good friend for so long. So we work together very closely in WG Design, share platform design experience. So overall, Computex, we have lots of new product

announcement with NVIDIA. At the same time, liquid cooling. As you know, now all our CPU, GPU consume much more power. So our state-of-the-art liquid cooling solution will benefit our customers, save their energy costs up to 30% or even 40%. So we have lots of customers really very passionate to move to liquid cooling. And we have a very good product line already with inventory ready to support our demand. Liang said he's got some product areas that aren't AI-focused getting pressured by the macro environment. This is important because it's reflective of what we just saw from HPE

earnings minutes ago. There's AI-centric high performance, and then there's everything else. Yeah, and Supermicro, we know, has been trading right alongside NVIDIA. It's up another 7%, another fresh 52-week high today. Well, let's get back to Mike Santoli for more on AI and the chips, and specifically NVIDIA's rapid climb. Mike. Yeah, Morgan. And putting it into some slightly longer-term perspective,

here's a 10-year chart of NVIDIA. And you have to keep in mind that fundamental momentum, stock momentum are real phenomena in the market. It's not wise to always just take the other side of it just because something's gone so far so fast. The other thing I'll mention is here in 2020, let's say mid-2020, the NVIDIA had the exact same price to earnings multiple as it has today, around 50 times earnings. In other words, the earnings and the earnings estimates have continued to soar. At some point, this is going to be too much too soon in terms of upside.

But who knows when? We did have a 60-plus percent reset right here into the low of last year. So just keep that in mind. And over the last three or four years, we're up about eight times in NVIDIA's share price. It's reminding me in some degree of the build-out of the Internet in the late 90s. Here's a chart of EMC, which is, I mean, largely forgotten. It's inside of Dell right now. But at the time, you had this compulsory big company buying of data storage, which EMC was almost the exclusive vendor of this particular type of equipment.

And I remember at the time the reports of company IT managers saying, we wish we could stop buying your stuff. We can't stop buying your stuff. And what happened here from 97 to the peak in 2000, it went up by 20 times, from about 5 to 100 split adjusted. Now, I'm not suggesting this is going to be the trajectory. I don't know there's going to be the same kind of bust. Very similar chart, by the way, would be Cisco of this same time period. The point is, you just never know when an individual kind of consensus beneficiary of a massive trend has gone too

far. And as I'll just go back to saying NVIDIA, for as much as it might be overheated in the short term, the fundamental metrics continue to move in the right direction, John. Yeah, very smart. Thanks for the history lesson there for traders, Mike. Up next, the top analyst tells us what he wants to hear on the earnings calls from HP and Hewlett Packard Enterprise, which are coming up in just a few minutes. We'll be right back. Welcome back to Overtime. Let's get another check on two after hours movers. HP beating on earnings per share, missing on revenues. Similar story for Hewlett Packard Enterprise, missing on the top but beating on Hewlett Packard Enterprise, missing on

the top but beating on the bottom line. Third quarter revenue guidance, a little weak as well. Joining us now is Evercore ISI analyst Amit Dharianani. Amit, let's talk about HP Inc. first, because I wonder if you see what I see in here, which is possible stabilizing in commercial, both on the PC side, commercial printing up 5%. Does this reflect some return to office and perhaps some return to commercial buying again of both PCs and printing in office? Yeah, on the print side, definitely seeing commercial business starting to improve, which is a nice sign for them. You're also seeing print operating margins

at 19%, I think a fairly strong sign that perhaps the commercial side is starting to stabilize. On the PC side, I think it's in the headline revenues were like down 24, 25%. The focus would clearly be

have we hit a bottom on PC? There's a lot of data points that suggest we have. And if that's the case, then I do think the back half story starts to get a lot more attractive for them as commercial starts to improve and you potentially start to get a bit more of a back to school seasonality in the PC side as well. Yeah. And I should have mentioned, you know, consumer personal systems is down 39 percent compared to that 24 in commercial. So so not as bad when it comes to Hewlett Packard Enterprise. Everybody's trying to tell an A.I. story right now.

But there are degrees, it seems, to which different companies are actually benefiting from this A.I. rush. Is HPE's high performance computing division really geared toward that? How are we going to be able to tell? Yeah, John, if you look at their high-performance compute business, right, it's really focused heavily on the super-compute clusters that are deployed by universities and big institutions, right? It really is typically not being this high-intensity, data-driven AI algorithm or models that are running out there, right? It really is typically not being this high-intensity, data-driven AI algorithm or models that are running out there, right? So I would say it's not the case today. The part you want to hear from them in this server business, their compute business was actually down

three, four points year-over-year, and that's what we miss, I think, street numbers by the most amount is their server business underperformed. The part you want to hear from them is what angle, what vantage point can they have to ramp up servers and perhaps even infrastructure for these AI workloads? Let's say maybe not as much on the high-performance compute side. That thing, I think, is not going to be AI-driven,

but more on the compute side, on the server side, can they start to have a story over there to provide really GPU-based servers for these companies that are deploying AI, large-language models right now. So whether it's HPE or HPQ, looks like you have in-line ratings on both of these companies. Would you buy either of them right now, given the results we just got, or something else?

Well, you know, I would buy something else would be the short answer right now, right? I think there are better parts of the enterprise side, for example, networking companies that are doing really well. In fact, if you have HP Enterprise, their networking business was up like 50% year over year. So I do think the parts of enterprise spend like networking that are doing very well, so things like Arista or Cisco or Juniper would do well. I do think of these names, the part you want to hear with HP Inc. is what does the back half recovery look like? If that starts to materialize in a more positive manner, I think this starts to become a very interesting pre-cash flow generating asset to own for the back half of the year. So I think that's the one that's closer to an inflection point potentially, which is not.

Okay. Amit Dharianani, thanks for joining us on the heels of those earnings results. Well, up next, we will discuss why defense tech startups like Red Six are taking off right now. Stay with us. Welcome back to Overtime. The debt ceiling deal includes a 3 percent increase to 2024 defense spending in line with President Biden's budget request. For 2025, it's just a 1% top line increase, which is short of some analysts' expectations, perhaps the reason defense stocks ended the day either lower or flat. But investors are putting more money to work in defense startups. Take Red Six, which is closing a $70 million Series B round led by Redbird Capital

Partners with the venture arms of Lockheed Martin, Boeing's AEI, Horizon X Fund, Disney, and others. This technology has major use for defense applications, but it also has a number of other use cases outside of defense. And I think you're seeing increasing appetite for that now. And obviously the geopolitics of what's happening in the world right now really helps that. And I think investors are starting to really get behind that trend. So Red Six has developed augmented reality for military pilot training, with the U.S. Air Force expected to flight test its first plane with the tech in coming weeks. AR in the cockpit means simulated scenarios while flying with no need for a second pilot in a second jet, which is how training currently occurs. Now, to put this in context, founder and CEO Daniel Robinson used to fly F-22s. Every flight cost $100,000. So he expects the debt deal to get done

and defense spending to keep growing, but says it can be tough working with the government and the Pentagon specifically. As much as they are, you know, working hard to embrace small technologies, small companies and advanced technologies, it is still immensely difficult for small companies to make their way through the behemoth that is the Department of Defense. And that is the biggest threat to us. And I would wager that every tech CEO out there that is dealing with the Department of Defense would echo those sentiments. Now, Red Six is focused on military for now, but longer term is working on applications for individuals, outdoors, interacting with their surroundings, as one example. Though Robinson wagers that that's still at least five years away, maybe longer for the industry writ large.

That said, he is, quote, waiting with bated breath for potential announcements coming out of some high profile companies. And I can think of one that maybe we get an AR related announcement just next week. John Apple. Yes. looking forward to Apple. Also, Microsoft had this deal with the military related to AR, and it sort of got panned. The HoloLens deal. Yeah. It seemed like the feedback from the military caused some headaches,

wasn't really great for the environment. Yeah, it's a multi-multi-billion-dollar deal. They continue to move forward with it, but there have been, it is not the deal it once was thought to be, and the military, the U.S. Army specifically, has started to look at other options as well. I'd also just note, John, when we're talking about some of these companies like a Red Six or even Andrel, who we had on a couple of weeks ago. These are dual-use technology companies, and Palantir is sort of the poster child for this template.

It's up 90% this month. You want to talk about names that have been getting investor attention as AI plays? Palantir is very much one of those names, but also more broadly just investing in this space. I mean, Catherine Boyle of Andreessen Horowitz on with us a couple weeks ago. This idea of American dynamism. It is in addition to AI and perhaps because some of these technologies like a Palantir or an Anduril involve AI, you're seeing funding here, even if the rest of the market is pretty dry right now. Interesting stuff. All right. Still ahead,

what to expect from tomorrow's debt ceiling vote and why our next guest still thinks there's a one in five chance of a default. We'll be right back. Another busy day on tap tomorrow, we've got Salesforce reporting first quarter numbers. We'll also get results from Chewy and C3 AI. But perhaps the biggest thing investors will be keyed in on is, of course, this House vote on the debt ceiling deal. The Rules Committee is still meeting this hour. Joining us now is Terry Haynes, Pangea Policy Advisory founder. Terry, great to have you on. I mean, we've already had some lawmakers come out and say they're not going to support.

How much of this is bluster? How likely is it that we do actually get a deal done this week? Thanks, Morgan. I have it at 80-20 today. But I was, you know, up until the beginning of May, I was at 60-40, 40 percent that we were going to have a default and 30 after both McCarthy passed a bill and Biden agreed to talk about limiting the rate of spending increase. So I'm at 80-20 today. And that's just because there's a difficult combination of politics, votes and the roughly one week left to accomplish this. But, you know, I do think this gets done, But that's a little more than a trailing risk. OK, so saying that this does get done,

how do you see it in terms of winners and losers? I mean, we mentioned we mentioned the pipeline, the company behind the pipeline that looks like it's poised to get approval. And that stock surged 35 percent today. Is this shaking out the way we anticipated? Can Republicans, for example, say, hey, listen, you know, we got a deal done that works for us. Can Democrats do the same? I mean, how do you see it? Yeah, I think both sides get some things to talk about here. Traditionally, in spending fights, Democrats always hang on Republicans the idea that they're

going to have draconian cuts to this or that domestic spending program. And then when that turns out not to happen, Democrats claim victory. So that's good. Similarly, Republicans can talk about starting to turn the battleship around and limiting the degree of increase in spending. So that's good for them, generally speaking. For markets, though, I think this is rather muted right now. What people need to remember outside of things like the pipeline or energy, where both fossil and clean energy can point to wins, these are budget top lines. And what markets tend to react to are more the specifics on spending, where the money

is going to go, to whom and for what purpose. That won't happen until the spending bills this fall. So really, markets can say, well, we've got some certainty here on fiscal for the next two fiscal years, and that's good, generally speaking. But Congress also has to fill in the details on spending in the traditional spending fights in the fall. And one net negative out of this, frankly, is that those fights are going to be rejoined just in about four months at the end of the fiscal year. So, you know, the fights about the specifics will continue. And I think markets will wait for more specifics before they go up or down on a lot of this stuff. All right. Terry Haynes, thanks for breaking it down for us. Thank you, Morgan. All right. Well, just getting a check on the markets, John, here. I mean, it was a mixed

picture. The Nasdaq eking out a gain. The Dow lower, though. C3 AI, as you mentioned, is going to report earnings. And it was up 33 percent today. Now, we've had Tom Siebel on quite a bit. It's a heck of a rise ahead of getting some numbers reported. And it's interesting. People tend to say that this is a stock that's been overhyped. Look at where it was three years ago. All right. We're going to be watching that one closely. So much more. That's going to do it for us here at Overtime. Fast Money begins right now.