Closing Bell - Closing Bell Overtime: Another Record Day on Wall Street 2/23/24

Episode Date: February 23, 2024

The Dow and S&P both hitting another record today. Jefferies’ David Zervos and Brooke May from Evan May Wealth break down this winning week for the market. Plus, Olaolu Aganga from Mercer is breaking out her market playbook – and highlighting where she is seeing pockets of opportunity. And, US Commerce Secretary Gina Raimondo exclusively sat down with Morgan Brennan – discussing AI, the chips act and more.

Well, we're in the green on the Dow, the S&P, and even the Russell. Only the NASDAQ sitting out the gains. That's the scorecard on Wall Street, but winners stay late. Another big day for stocks with the Dow and S&P, as I said, both closing at record highs again. NVIDIA's market cap touching $2 trillion intraday. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. We're going to talk about the AI halo effect for stocks, but we will also go beyond NVIDIA when we talk to Goldman's internet analyst about some of his contrarian bets, plus Commerce Secretary Gina Raimondo on the CHIPS Act and why she has national security concerns about some electric vehicles right now. Well, let's start with our market panel now. Joining us now is David Zervos from Jefferies and Brooke May from Evans May Wealth. Guys, happy Friday.

Brooke, I feel like maybe there was a narrative shift this week. If you were defensive, if you thought things were imminently broadening out, you were disappointed. But some people might think, surely now the big gains are done. You say they're not. So what takes us higher? We think that earnings take us higher. When we look at the S&P, we put a 5,200 to 5,400 price target on it between now and year end.

We've had that price target for a few months, so we got some pushback initially, but now we're 2 to 6 percent from that target. We're not opposed to revising it, though, if we see earnings come in better than expected. And so as we look at not only Q4, but Q3, earnings weren't the debacle that a lot of people were expecting. And now that we've seen most companies report, earnings beats were in line with the 10-year average. So the economy isn't doing as poorly as some thought it would, and we think that'll continue. Okay. And David, the 10-year yield has been quietly marching higher all month, now above 4.25. What does that, if anything, portend for equities? I think, John, markets just really priced out a lot of these rate hikes early that were priced in the beginning of the year.

If you look at the moves in some of the projected rate levels for March or June, they've moved 60, 70, 80 basis points even to start the year. So pretty incredible. The long end has stayed pretty intact. The curve's inverted a little bit more, which I think is healthy for the stock market because it's just saying, look, we're going to stay at that 5.25 to 5.5 range a little bit more, which I think is healthy for the stock market because it's just saying, look, we're going to stay at that five and a quarter to five and a half range a little bit more, but we're eventually going to get some what I like to call victory cuts as the victorious Fed wins the inflation battle. And I think that's a story that's still TBD, but certainly with 600

basis points of disinflation over the last 18 months or so, they've done a heck of a job compared to where many thought they would be. And I think that's the reason the market continues to do pretty well, is that that long end, even though it's marched a little bit higher, has found some equilibrium here, I think, this week a little bit. Especially today, it felt pretty good. Yeah, Brooke, that raises a key question, and that is, in a week where we saw the S&P, the Dow Industrials, the Nasdaq 100 all reach new record highs propelled largely by NVIDIA and this AI halo effect we've been talking about and what it's done for tech stocks more

broadly. Is that what matters the most to the market right now, or do we have to set our sights back on the Fed and what rate cuts look like this year amid a flurry of Fed speak we've gotten this week and now expectations that whenever we do get a cut, it's going to be later than the market was expecting? As we've seen for the last year, the bond market's been tethered to the Fed and the stock market was tethered to the bond market. That's now no longer the case. There's some decoupling that's going on there. And we're able to kind of step back and look at where are earnings.

And inflation, it definitely has an impact. Higher interest rates definitely have an impact. But we see that easing. We're in the camp. The rates aren't going to be coming down until the second half of the year. But when you peel back the onion and look at CPI, 30% of CPI is shelter. And the way shelter is calculated, there's a little bit of a delay. So when you look at real time, rents are going down. And that's going to feed through to CPI. And we're going to start to see some cooling here in the months ahead.

So while it appears sticky, there is some light at the end of the tunnel. And once we see that those rate cuts are imminent, the stock market's going to go higher and it could go meaningfully higher. Yeah. And of course, we get PCE next week. David, to me, Fed Minutes this week, the most interesting thing that came out of that report was the commentary about quantitative tightening and the fact that it would seem officials are now prepared to start to consider or talk about at the next meeting when they're going to start to taper that process of letting bonds and whatnot roll off the balance sheet. How meaningful is that, especially when you start to talk about the intersection of not only monetary policy,

but fiscal policy and in an election year, I might add? You know, Morgan, I think it's a really, really important topic. We've been stressing the balance sheet for a long time with our clients, well over a year, trying to focus on the fact that it is still very large at the Fed, over $7 trillion, about seven and a half. And with those comments, I think it's likely to settle in at a number like $7 trillion on a more permanent basis. And that's $7 trillion of permanently monetized debt, as far as I'm concerned. So it changes debt dynamics. It adds a lot of reserve and cash and circulation to the system, high-powered money, which I think is very stimulative. It socializes some of the law structures when rates go higher. So all those things that we've been writing about

and talking about at Jefferies for the last year on the balance sheet being a stimulative force in the face of these rate hikes, I think it really is important that they're slowing and stopping it. And that's a positive force for the risk asset markets that we see, you know, continuing to propel the riskier parts of the capital structure like equities higher this year. And that's why we've moved out of kind of the high yield area where we were focused last year and thought that was the safer place and moved more into the equity space to start 2024. OK. And so, Brooke, with that backdrop, you say that investors should resist the urge to buy specific sectors, that you've got to go to individual stocks. Why?

Absolutely. When you look at 2023, the best performing stock in the S&P 500 was a tech stock and the worst performing stock was a tech stock. So you can't go in and buy a broad sector. Clearly, companies have navigated the higher interest rate environment very differently. Very similar companies. Some have done well and others have struggled. And right now, in this environment, companies that are beating are being rewarded more heavily than historical averages. And companies that are missing are being punished.

So you have to be very specific. We're looking at companies that have good free cash flow in addition to lower leverage and a strong balance sheet because we're in the camp that, you know, rates are going to be higher for longer. And we want to make sure that we've got a little bit of protection there. So, David, just to go back to what you said before, are equities the place to be? Are there other types of assets that you'd be buying into right now or focused on? You know, I think the high yield markets are still interesting, just a little

less interesting than they were last year. Spreads have come in that much more. I don't know. And I'm with Brooke on this. I think the moves we're going to get in rates this year aren't going to be as exciting. So you're not going to get that big push on the fixed income side that you got at the end of last year. I think the markets really set up, you know, Morgan, for more of an equity story and more of a story that we don't really need the Fed. You know, think about last year even. The markets were priced a year ago for two rate cuts and we got four rate hikes. We got 100 basis points of rate hikes last year and the market was priced for 50 basis points of rate cuts. And we still had a plus north of 20 percent year in stocks and a

13 or 14 percent year in high yield. So we don't need the Fed to be there. It's nice that we can have them back. It's nice that the put structure is back. And we've been talking a lot about that as a positive for risk assets, but we don't need them. And that's what's this interesting story this year is even though the Fed has really talked back the market from all these cuts and the market was a little whiny about it when Jay Powell said it, I think we got to go. You know, we got we got quite a lot of equity performance already in the first six to seven weeks of the year, even with the market taking out a lot of those rate cuts. So I think that's really the story for 2024. OK, we'll be watching it. David Zervos, Brooke May. Thanks for joining us with the S&P eking out a record finish today,

albeit up just barely. Here's a stat for you, John. With the S&P higher this week, we've now only had two down weeks on the S&P since that market trough back in October. So dangerous not to be invested, right? Because you tend to think, oh, what's been happening can't keep happening, but then sometimes it does. Well, let's get to the technical side of this week's rally. Katie Stockton from Fairlead Strategies joins us now. She is also a CNBC contributor. Katie, it's great to have you on. We've seen not only the S&P at a record high this week, we've also seen the semiconductors, the SMH, for example, reaching record highs in the midst of that blowout report from NVIDIA. What do the technicals tell us about the relationships between, say, the SOX and the SPX right now? You know, the momentum has been

really strong, of course, in absolute terms and also in relative terms for the semiconductor sector. And that's bullish because semiconductor stocks tend to exhibit leadership and strong tape. So there are no signs of upside exhaustion for either the S&P 500 or the Philadelphia Sox index from looking at things like the overbought or sold metrics. And yet we have seen a very subtle loss of short-term

momentum. You wouldn't have known it yesterday with the gaps up that we saw, but those gaps up can be somewhat exhaustive when they occur in strong up moves. So for the first time, we're calling for a little consolidation, and that consolidation could be driven by the semiconductor sector, but we think it will be short-lived and something that would serve to refresh the uptrends both in the stocks and the SPS. We can talk about the torrid rally in NVIDIA this week, with that stock touching a $2 trillion market cap earlier in today's trading session. But really, the huge pricing action has been in Supermicro, a name well known to overtime. What does that chart tell us? You know, it's funny. For the first time ever, I've gotten a lot of questions on Supermicro this week from clients and friends. The stock

has obviously been on this tear and it's gone parabolic is what we say. The breakout was above a former resistance. This is in January above about 357. And it's a bit scary because that's really the first major support now on the chart. That's about 500 points below. So that obviously creates some risk. But the message here is that breakouts have been working really well. It worked for Supermicro. It worked also for NVIDIA. Now, of course, both look a bit overextended. Supermicro, for one, did have what we call an outside down day. It's when the day's trading, the high-low range encompasses the previous days. And at the same time,

we did have a short-term signal that indicated it was a bit tired on the upside from the Demark indicator. So we're looking also for consolidation or sideways to lower action as Supermicro digests those gains and hopefully doesn't need to go back to that support level. Just to manage risk, we like to do two things, either place a stop loss at a sort of a comfortable level from a percentage perspective, and or we like to watch the slope of the 20-day moving averages for these types of securities that have gone parabolic. Once it starts to flatten out, that's usually indicative of a loss of momentum that's somewhat significant. Katie, when you're doing technical analysis on ETFs in an environment where there are some big stocks, the individual stocks,

that just have an outsized influence on that ETF, does it change the nature of your analysis at all? No, you know, we respect, obviously, the market cap weightings within the ETFs, and we're certainly aware of them. And when we look at even the major indices, you know, the S&P 500 with a big footprint itself in NVIDIA, it does impact the way we think about it. We know that technology is really essential, in other words, to the equity market as measured by the S&P 500. So we take it into consideration, but we still analyze the ETFs that have these big heavyweight positions the same way that we'll analyze anything else that has a price trend. And we'll respect, of course, when it does go parabolic. And we know usually where those influences are coming from because ETFs are so transparent.

Yeah. Katie Stockton, thank you. Of course. Well, it was a winning week for all the major averages. Up next, we're going to hear from Mercer's U.S. Chief Investment Officer of how she's navigating this market environment and where she's finding opportunities. She's going to join us on set after this break. And later, my exclusive sit-down with Commerce Secretary Gina Raimondo. Her take on the CHIPS Act, AI, and so much more. We're going to bring you that interview.

That's coming up ahead on Overtime. Back in two. Welcome back to Overtime. Another record-breaking day on Wall Street with the Dow and the S&P both closing at new highs. Joining us now to share some of the areas where she's finding opportunity is Olaluaganga. She's Mercer's U.S. Chief Investment Officer. Great to have you back here with us. We've been talking so much about tech. And I was talking to Pippa Stevens earlier about the relationship or maybe lack thereof

between tech and energy. Energy as a sector has not been doing well. With the investment flowing into energy infrastructure, might that change? Definitely. I mean, where we've been talking about with regards to infrastructure has been a focus for quite some time. We mentioned in the last segment that we had our clients were looking to allocate more to infrastructure. We've seen M&A deals. In the last six months, we've seen four deals with regards to firms focused on infrastructure. And then the last month alone, we've seen about, what is it, $5 billion from a government funding standpoint on 37 major projects with regards to infrastructure.

So definitely a focus area for investments, both in private and anything that's funding bridges, clean water, that type of area. We talked to you a lot about real estate. I wonder if, since the last time we've talked, investors are getting more opportunistic and ready to jump in on these distressed properties, particularly in commercial or no? If you don't need to finance it, if you've got some cash, it's a great area. We're seeing vacancy rates go up. We're starting to see with regards to development in buildings, if you're able to go and rehab some of the buildings that are out there, make sure that they're a little bit more energy efficient. You can have those leases and lease them up. But overall, lots of opportunities if you have cash.

Leverage is the hard part. Race where they are is a little bit difficult. It is interesting to hear you say that, though, because it did feel like last year, as we started to see the first wave of distressed real estate hit the market, there were a lot of investors kind of just sitting on their hands going, ah, this has further to fall. And it almost becomes its own death spiral, if you will. So the idea that folks are starting to step into that market, folks with cash, I think, does it signal perhaps a bottom in this cycle right now? So at the start of the year, and everything is predicated on rates, so at the start of the year, there were actually rate cuts that were indicated. You know, as early as March, now that looks like that's pulled back a little bit. So where rates are and the levels of financing is

almost what was indicating the ability to maybe step in. So if you have cash and then if financing rates go lower, then that's an opportunity to start really delving into real estate. But before last year, it was up. It was an upward trajectory with regards to rates. Whether it's real estate, whether it's infrastructure, I mean, it sounds like we're talking about private markets as the place where the biggest opportunities are. Is that true? It continues to be private markets because in public, S&P and the Dow reaching all these highs, but it's a narrow breath. So where you're seeing a lot of the opportunities with regards to public markets is still a few stocks, very select areas, AI, as we're looking at it. But private markets is a lot more. But if you have cash and rates stay higher for longer, wouldn't that mean you have less competition in going after some of these properties you might want?

Because, you know, you don't have to deal with the people who need the leverage, just the people who have the cash. Or am I thinking about that wrong? No, that's precisely the way to be thinking about it. So you have less competition. You know, I think last year we actually saw a good amount of investors start increasing their cash piles. So there are a good amount of investors that have cash sitting on the sidelines, have been dipping their toe in, and this is a great opportunity to do so. How much do the dynamics, market dynamics, public, private, or across sectors, whatever you have it, how much does it shift when we actually do start to see the realization of

rate cuts? Not everyone has the opportunity to do private markets, as we know. If you do, then that's great, that's where the opportunity is. But if you don't, then you look for some of the tangential areas that are related. We've talked about REITs. That's one of the areas that we've mentioned with regards to opportunity in sector areas, and then anything infrastructure related that are tied to buildings and developments. So those are the unloved areas. Our focus right now is looking at some of the areas that are beaten down and looking for them to revert through time. How much do you expect to be using artificial intelligence to scout out those opportunities over the next one to three years?

AI is a big area of focus, not just for Mercer, for many, many, many other firms. The opportunity to increase productivity, reduce costs is great. So we are investigating the use both in-house and in other firms, are really looking how you can integrate that in your regular processes for some of the tasks that could be a little bit monotone. Okay. Olalu Ogonga, thanks for joining us. Thank you both. Always good to have you here on set.

Well, up next, Secretary Gina Raimondo on the record. Earlier today, I caught up with the Commerce Secretary in an exclusive sit down. What she had to say about the AI arms race and why she's concerned about electric vehicles from China. That's coming up after the break. Overtime will what's been a big week for Semiconductor News. It started with a $1.5 billion funding award to Global Foundries, the largest deal to date tied to the CHIPS Act. CEO Tom Caulfield joined us here on Overtime earlier this week to discuss how it will boost the company's production capacity. Well, today I spoke with U.S. Commerce Secretary Gina Raimondo exclusively in a wide-ranging

interview, and we started by discussing that very announcement and what it means for the country and this multibillion-dollar effort to stand up an American semi-supply chain. It's our third CHIPS announcement, and you're going to start to see many more in the coming weeks and months. This is probably the first major expansion of a legacy chip manufacturing in this country in decades. Why does it matter? Because many of these chips are going to go right into military equipment, into military

satellites, military airplanes, military vehicles. And this means that for the first time really ever, the Department of Defense can have steady, secure, on U.S. soil chips, a supply chain for this critical military equipment. By the way, not to mention the fact that it's estimated that this will lead to the creation of 10,000 plus good, high paying American jobs. So I was up there the other day and it's a huge announcement. Yeah. And of course, it comes, as I know, your department is looking closely at the legacy chip market and the role that China is playing in all of that.

This week, you also spoke at Intel's Foundry event on Wednesday. This is in a week when we've seen AI-related news out of that event. It's the same day that NVIDIA smashed earnings estimates. Raises the question, can the U.S. move quickly enough to stand up that supply chain for advanced chips for AI compute and the role that the government has to play in that? That is the question, and my answer is yes. We can because we have to and we will. It's incredibly exciting, right? I mean, America leads the world in AI,

AI models, AI chip design, et cetera, and we now have to get into the business of leading the world in leading-edge chip manufacturing. And yes, we are well on our way to doing that, and I feel highly confident that due to our CHIPS Act implementation, which is off to a very strong start, that's exactly what we will do. But it's what you said. You need both. You know, you need these legacy chips for military equipment.

One of our former announcements at BAE up in New Hampshire, did a couple months ago. Those chips go into F-15 and F-35 fighters, jets. We need those manufactured in the United States of America. And also, we need the chips that NVIDIA designs to train AI models also manufactured in the United States of America. I'm fully confident by the end of this decade we will have that on our shores best in the world. We talk about stock market concentration of NVIDIA, which has such a formidable lead in terms of these Gen AI related chips. Do you worry about marketplace concentration?

You know, that competition is good for the world. Competition is good for markets and competition. The more competition, the better. That being said, you know, I am proud of the fact that it is an American company. In this case, NVIDIA, that is the world leader. And, you know, that that's really my job. My job as the commerce secretary isn't, you know, to be a voice of industry so much as it is to be the department that obsesses over making America more competitive, making our economy and the conditions such that our companies can out-compete the world. OpenAI's Sam Altman was also at that Intel event. There have been these reports that he's looking to secure U.S. government approval for a massive venture to boost global manufacturing of AI government approval for a massive venture to boost global manufacturing of AI chips. It's a venture that some reports say could cost

trillions of dollars. Reports that also say he's met with you about this possibility. Your comment. I have met with the CEO of OpenAI. By the way, I meet with, I try to meet with some CEOs every week. You know, from what I know of it, what that company and other companies, big, big consumers of chips are trying to do is just have a secure supply chain. Exactly what you said. I mean, if you look at the amount of chips that these hyperscalers and AI companies are thinking they will need, it's pretty mind-blowing. And so they are all trying to figure out their own strategy for how am I going to have access to the chips that I need at the price I can afford that's in a diversified supply chain, not all coming from one company in Asia. So again, I don't focus on any one company. My job is to make sure there's a secure supply chain and a good workforce and good conditions

so American companies outcompete any other companies in other countries. Shifting gears here, Stellantis CEO saying low-cost Chinese EVs are, quote, going to be an existential problem just a few days ago. We know Europe's grappling with this problem in the U.S. We already have a tariff on Chinese EV imports. Do more actions need to be taken? Probably, yes. I share the concern. By the way, I have national security concerns about electric vehicles. You know, an electric vehicle has sensors and semiconductors. They know who's driving it, where they're driving, huge amounts of data.

You know, Chinese EVs on our road. Is that data going back to Beijing in ways that undermine our national security? We're looking hard at that. Additionally, what you say. I mean, listen, I have always maintained Americans can compete if there's a level playing field. And you have a situation where China is distorting the market dynamics due to subsidies and low cost of capital. And so I know the president is deeply concerned about both of these issues. And the administration is being thoughtful. We want to get it right, but have our eye certainly on the ball of thinking about what can we do, what must we do to protect Americans. Speaking of China, Nippon Steel reports, which is looking to acquire U.S. Steel.

There are reports that the administration is scrutinizing ties to China, exposure there, assets there. Your response? You know, it's concerning. There's no doubt about it. I did see those reports. Nippon does have holdings in China. Anytime a company has holdings in China, we have to scrutinize that unbelievably closely. So we have a process. You know, we have the CFIUS process. I'm not

going to get ahead of that process. But, you know, I'm concerned. The president is very concerned and we're going to do what we need to do to protect Americans and American workers. Finally, we're marking two years of Russia's invasion of Ukraine today, another sweeping set of sanctions that were issued by the administration toward Russia and certain individuals there, I think the largest package we've seen to date. How much has trade and business changed in the last two years in the midst of this war? How do these sanctions continue to put pressure on Russia? How do you see all of this playing out from a policy perspective within your department?

Yeah, I want to say this. We at the Commerce Department, myself included, wake up every single day asking ourselves, what can we do to stop Putin's war machine? And just today we announced we're putting another 94 companies on the entity list because we have found that they are still selling, you know, spare parts and technology to Russia so Putin can conduct this unjust criminal war. So is it working?

I think I'd say yes. You know, we have hundreds of companies that we at the Commerce Department have put on the list. We've blocked them from selling technology and semiconductors and spare parts to the Russian military. But it's it's this war must end. He must end this war. And until he does, we are going to wake up again tomorrow and ask ourselves, what more can we do? American and people in the world, we are blown away by the immeasurable courage that the

people of Ukraine have shown and continue to show every single day. And my message is, we are with you, and we will be with you until the end. John, a lot covered there in that discussion. On Monday, the secretary is going to be at the Center for Strategic and International Studies, CSIS, to be giving a what's being billed as a major policy address on investing in leading edge technology with an update on Chips Act implementation. So perhaps we got a little bit of a precursor there in that conversation on what maybe we could be hearing next week, especially where all of these AI capabilities are concerned. Yeah, the part that caught my eye especially was the Chinese EV issues. And I wonder how much of that concern is legit and how much of it is overzealous protectionism.

Because in a way, yeah, you could talk about cars being mobile surveillance, but if China has TikTok data, that's a lot more concerning, you know, both when you're in the car and when you're not in the car and what you're posting and where you're posting, what you're posting about. So if we're serious about that, don't we need to really go back to TikTok? Yeah. I mean, the short answer is yes. Is that going to happen in an election year? Probably not. But we've been having this discussion and these debates, and we've seen some policy efforts along those lines in the last couple of years. But to your point, especially when you start getting into self-driving, you're talking about treasure troves of data, right?

And when you're talking about EV specifically and some of those critical materials as well, this is supply chain as well. You start to talk about some of those critical materials, whether it's rare earths, whether it's something like lithium, which the price of lithium has completely fallen off a cliff. And some folks would say within the industry argue that perhaps China is playing a very heavy hand in driving those prices down right now as other makers of lithium, miners of lithium are now forced to shutter in and maybe slow down some of their own production, perhaps putting more control into the hands of China in the midst of this EV rollout. These are some of the debates and the discussions that are happening that I would imagine we're going to hear more about on the policy side this year. Yeah, yeah, great stuff.

Thanks. Well, as we mentioned, tomorrow marks two years since Russia's invasion of Ukraine. This is a war that resulted in hundreds of thousands of dead. Economic technological effects felt globally. One sector that's been greatly impacted has been defense. So far, the U.S. has provided $113 billion in total military support to Ukraine. That's according to T.D. Cowan. Much of it focused on supplying and now replenishing munitions, missiles and air defenses. It helped push the Pentagon budget higher of 16 percent last year versus 2020.

And foreign military sales have reached a record, $108 billion in fiscal 2023, as allies also spend more. Jeffrey says Lockheed Martin and RTX have won the most sole-sourced awards tied to Ukraine funding. General Dynamics stands to benefit as one of the largest 155-millimeter ammunitions manufacturers. These are artillery rounds that are in very, very high demand. And the need for more solid rocket motors, that could benefit LHX and Northrop Grumman, too. CSIS Tom Carrico notes that Ukraine and now the Middle East show the salience of missiles and drones in warfighting, triggering a, quote, massive demand signal for ways to counter them. It's now a key focus for DOD. This is something we talked about with the army restructuring a couple of weeks ago. And a flurry of companies from AeroVironment

to Andrel Industries, names well known to the show, are looking to fill that need. Nonetheless, while defense stocks are higher in two years, they've actually underperformed for the most part. They've underperformed the market in the past 12 months as supply chain issues and fixed price contracts have kept margins stuck or at least range bound. And a 2024 budget, something else we've talked about quite a bit, still has yet to be passed. And that one, of course, will be in focus here in the coming days, in the coming weeks, as lawmakers have to either appropriate, pass another continuing resolution, or perhaps face partial government shutdowns. Yeah, an important moment to mark, for sure. Time now for a CNBC News update with Julia Boorstin. Julia. Hey, John. Alabama Attorney General Steve Marshall said in a statement today

that he does not intend to use the Alabama court decision as a reason to prosecute IVF families or providers. The state Supreme Court recently ruled that embryos were considered children and protected with full rights. A federal judge approved a plea deal today that orders Binance, the world's biggest cryptocurrency exchange, to pay $4.3 billion in one of the largest criminal penalties in U.S. history. Last year, Binance and its co-founder, Shang-Pen Zhao, pleaded guilty to

money laundering violations. CZ, as he's often called, was forced to step down as CEO and is facing an 18-month prison sentence. And some big news for Game of Thrones fans. On the earnings call this morning, Warner Brothers Discovery CEO David Zaslav shared an update on the new Game of Thrones spinoff. He said that the series, called A Knight of the Seven Kingdoms, was in pre-production with Game of Thrones author George R.R. Martin and that it will premiere towards the end of 2025 on Max. Back over to you, John. I thought you were going to say they were going to televise how they're deciding which content to keep and which to cut. Julia, thanks. Coming up, trading the tech rally,

the sector seeing serious strength this earnings season. We're going to hear from one Goldman Sachs analyst with how he's playing this space right now and some names outside of the Magnificent Seven he's betting on. Overtime. Tech is among the best performing sectors this week, in large part due to NVIDIA and AI excitement. But our next guest has a few contrarian ideas in the tech and internet space

that he thinks could be big winners. Joining us now is Eric Sheridan of Goldman Sachs. Eric, it's great to have you on. I'm going to start right there. What are your contrarian picks and why are they so meaningful, especially in a week where some of the other Internet names that weren't necessarily AI related? I'm thinking about booking, for example, today have actually sold off pretty aggressively. Yeah, I think, look, there's still plenty to like about many of the large cap names. We've talked about those when I've been on before. But we do think away from those larger cap names, there are names that fit a certain quality of accelerating

growth, rising margins and elements of returning capital to shareholders. And we'd highlight three. We talk about Instacart in the delivery space, where we still like Uber, but Instacart is much cheaper. We think there's a lot of overhang around the lockup expiration from the IPO. You have a company that's already returning capital to shareholders via an announced buyback, and you have re-accelerating growth coming out of this last set of the print. Expedia is the cheapest way to play travel. We think they're returning the most capital to shareholders at the cheapest valuation and they're coming off a tech re-platforming cycle that had depressed margins and growth in 23 that should be better in 2024 on both the growth side and the margin side. And lastly, Pinterest. So we still do like Meta.

We like Google as well, Alphabet. But at the end of the day, Bill Reddy and the leadership team are making Pinterest more shoppable. There was a little bit of an expectation miss around the actual earnings print. But in the mid-30s, we see that as a compounder to grow the pipeline 15% to 20%, expand margins, and also return capital to shareholders. We're looking for some of those off the usual ideas for potential contrarian ways to get along the sector here. How much does this speak to, especially when you start talking about Pinterest or even Expedia to a certain extent, how much does it reflect the environment we're in for online advertising? Well, yeah, online advertising is quite strong.

You know, while there were some expectation misses around Snap and Pinterest with respect to the quarters that were reported for Q4, if you take a step back, Meta guided to 600 basis points of reacceleration in Q1. Pinterest guided to 300 to 500 basis points of reacceleration. Snap also guided to reacceleration in Q1. A lot of things in digital advertising are building a momentum, not losing momentum here. So we would play it through a number of names. That would be a subsector where we actually have no sell ratings and mostly buy ratings as opposed to other subsectors we cover where we have a wider range of reflected views between buy neutral and sell and that would be because of the end demand environment that they

find themselves in there's a higher marketing intensity in travel there's a higher marketing intensity in commerce right now and there's a layer of easier comps that's also allowing revenue to re-accelerate in many of the advertising names. Eric, are there unique risks in this environment at trying to pick the underdogs? It just seems like the biggest names are so strong and keep getting stronger. So when you point out Pinterest, when you point out Instacart, I'm kind of like, really? No, I get it. I mean, we have a little bit of a contrarian streak to us on our team. And, you know, there was that same reaction, to be frank, John, when Uber was at 25 and Meta was at 95, you know, 16 months ago. People sort of winced and were like, how could you suggest

the larger cap names then? Aren't these things going X growth and maybe they'll never grow again? So I think, look, there's obviously still room to mine for alpha in some of the bigger names. But when you think about how cheap things are relative to some of the larger names, and there's an increasing propensity to beat numbers going forward in some of these mid-cap names, we think that's an area where we'd look for additional alpha. Eric, this week, NVIDIA earnings were a huge test for the growth narratives. What's the next one? I think the next one is how well the consumer continues along this path. And we've talked about this when I've been on the program before with both of you. You know,

the consumer has been there's been a fear out there of a consumer recession for a long time. Obviously, from the macro side of the house here at Goldman, we've got a call for more of a soft landing. Some of the more single stock work we've done continues to point to a relatively stable environment. And take a step back. You have companies like Instacart and grocery delivery, Uber and ride hailing and delivery, Amazon, and some of the advertising names all talking about a consumer that's relatively stable versus where they were three, six months ago. A stable consumer for longer will be another fuel of growth for this industry. All right. Eric Sheridan, great to have you. Have a great weekend. Thank you.

You too. Be well. Coming up, we're going to take you inside one startup that's looking to shake up the legal world using AI and overtime returns. of all the key reports investors need to watch in overtime next week. And here's a stealth mover from today for you. Check out shares of MercadoLibre ending the day down more than 10%. It was the biggest drop in nearly two years on the heels of earnings. Overtime, we'll be right back. Welcome back to Overtime. If this AI wave is going to continue the way investors are betting it will, it will have to bring new productivity to industries.

This week, John takes time out with a founder who's trying to bring AI to the legal industry. John. Yeah, Morgan. Richard Robinson is a former lawyer whose startup, Robin AI, last month raised a $26 million Series B. He's got a personal motivation for trying to make legal expertise more accessible. Before his parents immigrated to England from Jamaica, some family members suffered from the lack of good advice. Two of my uncles were in a band called Musical Youth. I actually didn't know about this. I grew up with these uncles.

I didn't realize until I was a teenager and I was thinking about what I was going to study at university. And yeah, my uncle explained the story of how the royalties for his number one hit, Pass the Duchy, they were never given to him. The royalties were always a mystery

and he never really got the financial benefit that he should have. Yeah, you know that song, past the duchy on the left-hand side. There you go. Robin AI is starting by applying large language models to contracts, helping customers analyze and generate paperwork more quickly and more accurately. Customers include PepsiCo and Yum! Brands. Now, Richard Robinson says AI can change workflows in document-intense industries the way the PC did 30 years ago. The reason legal as an industry hasn't had a lot of innovation is precisely because the data is so unstructured. It's just text, and computers don't understand

text the way they understand numbers. And so generative AI gives us the ability to take text and to add structure, to make it understandable, more like a database than a page with words on it. So this equivalent to accountants used to do their sums by hand or using paper, and then they got tools like Excel. For the first time ever, we have an equivalent transformation for unstructured text-based data. And it's going to have a similar impact on the legal industry as Excel had on the accounting industry. So the timeout takeaway here for AI industries next, investors are funding AI plays that are crafting new models across things like customer service, sales, legal, and more. Another startup I'm following, medical AI startup Abridge, today announced $150 million Series C, Morgan.

It's really interesting. More John singing. We'll save that for a future show, I guess. After this break, your earnings set up. We've got another big week of earnings on tap. All the key names investors need to be watching. That's next. We'll be right back. Welcome back. Next week will be another busy week of earnings, especially here in overtime. We're expecting reports in from companies like Salesforce, Dell, eBay, Snowflake and Zscaler, among others. We're also going to get a lot of inflation data. John, not just PC for here in the U.S., but inflation data from Europe, too, which could potentially move markets more broadly. There's some stuff that's going to fill in the narrative here, particularly Dell, which had seen some boost in AI-related purchases,

and then Zscaler. After Palo Alto Networks, people are going to have questions about, does anybody else have those same kind of guidance issues that tripped up Palo Alto? Zscaler and CrowdStrike bounced back post-NVIDIA, but where do they go from here? That's right. And, of course, we're going to get some retailers reporting,

including Macy's, next week, too. Key reads on the consumer, see where we're at, especially as we do continue to talk about the deflation, disinflation, even deflation in goods and whether we're starting to see that transcend to services as well. But retailers will tell us about the holiday season. Yeah, I was just, interestingly, I was just at Macy's and Abercrombie over the weekend, and Abercrombie was more busy, as the stock has been. Makes sense. All right, well, we did have a mixed picture for stocks, but all the major averages finishing this week higher, except for the Russell 2000. What a wild week it has been.

Yep. That's going to do it for us here at Overtime. Fast Money starts now.