Closing Bell - Closing Bell: Overtime: Anthropic Co-Founder Talks Claude 2; Earnings Season Kicks Off With Financials 7/17/23

Episode Date: July 17, 2023

Stocks built on last week’s strength, in particular growth tech and small-caps popping. Truist’s Keith Lerner and Annandale Capital’s George Seay break down the market action and preview this week’s slate of earnings. Institute of International Finance’s Tim Adams on what’s ahead for bank regulations. Breakout Capital’s Ruchir Sharma talks China’s weak economic data and why America the most fiscally irresponsible of the developed nations. Plus, Fenway Summer’s Javier Saade on what to expect from Tesla earnings and former Hulu and Netflix executive Simon Gallagher on the strikes engulfing Hollywood. 

Well, that was an interesting last hour of trade, a pop and a fade into the close, but still closing higher. That's a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Ford. Morgan Brennan is off today, and we've got a busy show coming your way. Ford slashing the price of its EV pickup truck. A top Tesla shareholder is standing by with how he thinks this move could impact the big EV players ahead of Tesla's earnings report later this week. Plus, former Netflix and Hulu executive Simon Gallagher breaks the Hollywood strikes down and how streamer stocks might fare with all of this uncertainty. Our risk was on today with upstart tech and small

caps outperforming with an extra pop that faded in the last hour. Chips and cloud names, some of the top performers in the NASDAQ 100. Joining us now is Annandale Capital Chairman George C. George, now I know you're not selling big tech, but you're positioned to take advantage of a potential sell-off. But what about little tech? And tech that's like used to be big, but is now seen as kind of risky like Intel. Intel was a top performer on the Dow today. Yeah, that's funny. Intel's been a bad performer for over 20 years now. It's been kind of a straight elevator ride down to the basement for Intel shareholders for a long time.

And now it's actually a value stock and some value players are pivoting to Intel and interested in it. We're not super interested in tech right now. We're not adding to positions, but we're not cutting them either. We're kind of maintaining the status quo and holding and maybe writing some call options on things that have gotten way too far ahead of itself and looking to pivot a little bit in our exposure to healthcare and energy and finance. We think the financial stocks in particular are really, really cheap. There was a mini panic earlier this year over the regional bank stocks in particular are really, really cheap. And there was a mini panic earlier this year over the regional bank stocks in particular, and we're looking to take advantage of that. Well, let's talk about that because we've got Schwab coming in the morning. You're interested

in the regionals. The KRE had a nice little surge today. Let me see. That was up 1.7 percent, but it's still at those depressed levels where it dropped back in the spring. How much risk might there still be there, given that the whole necessity of so many regionals is under question? We're expecting consolidation. What's consolidation, if it comes, going to do to the KRE? Well, that's the right question, John. And it's why you pick KRE instead of picking an individual regional bank like Frost out of San Antonio or Regions out of the South, things like that. You buy an ETF or index that covers a whole lot of them. So if you miss on one of those particular regional banks, the overall move we think is going to be up and across the board in terms of the sector. And we've written put options from a strike of 45 all the way down to 30. And we own this KRE outright, as we do own Schwab as

well. And we think Schwab may disappoint on their earnings, and it may take them a while to get their footing back. But we really like the price. We think that's a really high-quality franchise. And when you can buy it well below the S&P 500 multiple, you buy it. Now, you mentioned energy and health care also. Is it because you like those? Yeah, I really like Johnson & Johnson at these levels. I think you're getting that on sale because of a lot of litigation and a slower amount of growth from that stock. And I really like upstream oil and gas. It's so out of favor politically and has gone out of favor again this year as commodity prices have gotten soft. Natural gas has cratered this year. Oil's down a good 30, 40 percent from the Ukrainian conflict peak of last year. And

we think this is a great time to establish new positions or build on quality businesses like Oxy or EOG or in the upstream gas space, EQT or RRC or Entero Resources. So we're adding to all those positions right now as they're out of favor. Okay. I also want to bring in Keith Lerner from Truist Wealth. Keith, we were just talking about energy and healthcare. George likes them. You don't. Why not? Yeah, well, great to be with you. Well, that's what makes a market, right? You know, we were big bulls on energy last year, and it got overcrowded.

We look a lot at the earnings revisions, and the earning trends for energy continues to weaken. I will say, you know, they are cheap. And if you have a longer time frame, let's say the next two to four years, I still think it works. Just in the near term, from an earnings revision standpoint and from a technical standpoint, it doesn't appear leadership. And the same thing with health care. Health care is a sector that's just always challenging. It looks cheap in a slowing economy. You think it would work. And then it's like Charlie Brown, you know, fumbling the football again. So there's areas within health care you're seeing biotech act a little bit better.

But we're underweight both those areas. We see better opportunities still in areas like industrials actually making a new fresh 52-week high. And even though tech has had a big run and we've been expecting a bit of a pause here, we think the earning trends for tech as far as revision trends will continue to outperform. And if that's the case, tech should continue to be leadership into the back half of this year. All right, Keith, you mentioned cartoons, so I'm going to stick with it. I think a lot of people are trying to figure out whether this market is Roadrunner, which could sort of run across a chasm without dropping,

or Wile E. Coyote, which seems to do it for a while and then drops. You say you're neutral across equities, bonds, and cash. Sounds like you're waiting for something to happen. How are you neutral across all three, and what's going to get you off the dime on one of those? You know, one of the main themes we came into this year was keeping an open mind. We think in this post-pandemic world, the traditional playbook is challenged. So we have to respect the underlying trend that's positive. I think earnings, forward earning estimates are at an eight-month high. The economy has been somewhat less interest rate sensitive. So that's the positive. On the other side, you're trading at a 19 multiple for this market. The Fed is still

raising rates and we still think that slows the economy. So at this point, we're saying be in line with your long term targets. Be patient for, you know, be patient and wait to either go on offense or defense and wait for what the market gives you. Right now, you know, again, I think it's a mixed risk reward, and therefore we think it makes sense. But again, underneath the surface, we're seeing opportunities. And one thing we did about a month ago was we upgraded the equal weight index, which had trailed quite a bit for the S&P.

Okay, so George, close us out here, maybe more on the strategic side as well. You mentioned those puts that you have written on the market. Talk about what your strategy is and how that allows you, if there's a sell-off, to buy in and have some advantage. Well, I would just echo what Keith said, too, that your time horizon is a big, big deal. And if you've got a short-term time horizon, I actually agree with him that I think energy and healthcare are a lot tougher on a short-term time horizon. I'm talking two to four years. I'm talking investment, not trade. And I think energy over the next two to four years is going

to be remarkable. And in terms of selling put options, that allows us to buy stocks that we want in much larger size if they fall even further. And I would agree with Keith that the market at 19 times earnings is tough, and the NASDAQ is closer to 30 times earnings. So we'd love to own NVIDIA 20%, 25% lower than it is now. And it's such a volatile stock that it's likely to do that at some point in the next 12 months. So if you put options anywhere from 10 to 20 percent out of the money on that security, you get paid to wait and watch and buy it at much lower prices. And we've been doing quite a bit of that lately because we don't want to. We're in the market to a degree. You don't ever want to completely time the market, but you don't want to overpay either.

You want to wait for better pricing. And right now, I think we're overdue for better pricing at some point this fall. Yeah. So just in case that roadrunner market turns Wiley Coyote, you got a trampoline at the bottom there with those puts. Sounds good. George, Keith, thank you. Now let's bring in senior markets commentator Michael Santoli at the New York Stock Exchange with a look at investor positioning. Hey, Mike. Hey, John. Yeah, positioning is definitely swung from deeply defensive and cautious to a little more aggressive. Equity exposure is up a lot, but not yet quite at maximum extremes. This is from Deutsche Bank. They call it their consolidated

equity positioning gauge. And it basically puts together things like investor positioning in the futures market, put call ratios, everything that goes into, you know, just generally how investors are postured right now. And you see this huge swing. And by the way, most of last year and then even into the beginning of this year, you were really able to make the case that not enough people had enough exposure to equities. If anything went less bad, you were going to get higher prices. That's exactly what's happened. The big question now is interpreting these absolute levels that we're at right now. So as you can see, we spent a lot of time above there when the overall market has been in uptrend.

So this is obviously 2017 was one period of time here, 2014, 15. So you've had these periods when you were able to sustain a lot of people being in the chase, so to speak, for the market. So I would say, you know, at some point, if it gets really aggressive and goes vertical from here, you're going to have to say that positioning is working against you in the near term, even though it can stay up there for a while, John. So it sounds kind of like what Keith and George are just saying. Keith is neutral across everything. George has those puts just in case you get that drop. We're right at that level where that kind of positioning makes sense. Yeah, I would say that we're at a point where it's no longer just enough that things get less bad

and enough people have already sold a lot and therefore the market is well supported. From here, it's more of a two-way trade. Incoming information is probably going to have to be digested. The bar is higher for immediate aggressive upside, unless we just start to decide to melt up on no real news, and that just creates its own instability, eventually, not right away. It's cool how that works, where the chart just explains what we were just talking about. There you go. Mike Santoli, thank you. Up next, breaking down the banks, earnings season in full swing for

that sector with a potential big crackdown from the Fed. Institute of International Finance's Tim Adams tells us what he's forecasting after this break. And later, former Netflix and Hulu executive Simon Gallagher is with us. His take on the Hollywood strike and the impact it might have on the streamers. Overtime's back in two. Welcome back. Second quarter earnings season picking up steam this week as we await results from Bank of America and Morgan Stanley tomorrow. Goldman Sachs on Wednesday. This comes with potential new regulation from the Fed on the horizon.

Joining us now, Tim Adams, Institute of International Finance president and CEO. The IIF represents 400 banks and financial institutions around the world. Tim, good to see you. So you say you don't believe the market tumult of the last few months should be called a banking crisis. I just wonder if rates in the U.S. do stay higher for longer, can we feel confident about what the impact of that is going to be? Are we going to get healthy consolidation with the smaller banks? John, thanks for having me here today. Yeah, look, if you look at the financial conditions indices, we're back where we were pre-March.

You know, the markets digested the four institutions that had trouble in February, March. And as we've seen, the large institutions from earnings last week, and I think we'll see this week, are fundamentally sound and doing quite well. I think we will see consolidation in the industry going forward. It probably won't happen very quickly because there's a lot of mixed messages out of Washington. But I think consolidation is a healthy trend for the industry writ large. So but these capital requirements for the for the banks you don't think are healthy. What would why not? And what would be healthy, particularly for the smaller banks, to make sure that we do end up with the kind of healthy environment that we were just talking about if consolidation happens? The most healthy environment is the

profitable institutions and one in which the macro environment is performing well. We want to see fast growth. We want to see capital formation, job creation, and rising living standards. We want to be a part of that solution. Rising capital and more regulations is detrimental to that trajectory. It's about a growth story. And if the economy is growing, the banks are doing well and vice versa. What about China? Right now, the growth in China, slow. There's a lot of unemployed young people, which is not good for any economy, but certainly not one where things don't seem to be speeding up. What kind of impact is that going to have on economies and financial institutions around the world? Yeah, John, you're absolutely right. It's been a bit surprising and troubling, the data out of

China, much weaker than we expected. We're actually marking down our forecaster this year. They're traditional drivers of growth out of China, exports, capital formation, and real estate's really underperforming. They seem to not have the policy levers they've had in the past. Secretary Yellen mentioned today in the G20 meeting that there will be spillover effects globally. Indeed, there will be. So I think we need to prepare for a negative shock from China. And hopefully they can find a policy paradigm going forward that brings about a little bit faster growth than what we're seeing in the second quarter. But at the same time, is that uncertainty in China's economy or that slowing bringing a nicer, less hawkish China?

It sure seems like there's some de-escalation, some cooling, at least in the language, U.S.-China relations. And you feel like those tensions have been a big risk. They have been a risk. They remain a risk going forward. I don't think that's going to change much over time. Although, again, I'll give that applause to Secretary Yellen. I thought she did an excellent job in Beijing trying to cool those tensions. But there's some fundamental challenges that exist between the U.S. and China. It's going to take some time to work through it. It's going to take leadership on both sides of the Pacific. So a lot of work to do. But kudos to Secretary Yellen for the work that she's done over the past month. How big an X factor is debt, both in China,

where we haven't been used to talking that much about the impact of debt, but it's risen precipitously lately. And then, of course, in the U.S. You know, globally, we're at $300 trillion worth of debt, 350 percent of GDP. And whether sovereign household or corporate or sub-sovereign, we've seen a massive increase. And in the U.S., I worry about the U.S. fiscal trajectory. We've added $10 trillion to our debt over the past seven years. It's not sustainable, John. And we're going to have to find a policy process going forward that brings in that debt, not only the U.S., but globally. So what sorts of policy processes are you expecting and what's the likely impact on financials? You know, in the U.S., I'm not expecting much of anything in the near term.

We're running a huge fiscal deficit relative to GDP that's going to continue. The administration wants to spend and spend on infrastructure. I'm for that. But there's really not a serious conversation in Washington about fiscal sobriety. It will happen someday when the markets stop taking in treasuries. But in the meantime, Washington has decided that there's not a problem. Hmm. Well, there is, as we know. Thank you. We're going to talk more about that. Both problems, actually. Debt in the U.S. and the issues in China up next. China's post-COVID boom coming to an end. New data painting a concerning picture overseas. We will break down what's at stake with Rockefeller International's Roshir Sharma. And later, the electric vehicle price war is on. Ford shares falling after cutting prices on its F-150 Lightning trucks. What the move could mean for Tesla coming up. Overtime, we'll be right back.

Got some breaking news on Activision. Steve Kovach has the details. Steve? Hey there, John. Yeah, we're just getting a new filing from Berkshire Hathaway saying they've sold a significant part of their stake in Activision, going from a 6.7 percent stake in the company to 1.9 percent. Now, it's this filing, the 6.7 percent we knew as of the end of last year. So sometime in the last six or seven months, they made the sale. It's a little confusing here because as we know, Activision is right on the cusp of being sold for 95 bucks a share to Microsoft. So, and we also know Berkshire got into Activision before Microsoft even announced they were going to buy the company about 18 months ago. So the timeline is a little fuzzy here,

unclear why exactly Berkshire sold. If they believed that Activision was going to get bought, maybe they learned something after the CMA knocked it down in the spring or something. But, yeah, significantly reducing their stake, though they still have nearly 2% when the deal does go through, John. All right, Steve, thanks. Mike Santoli, I mean, if they did it recently, it makes sense, right? I mean, because take your chips off the table, you won. Right, well, it had become a pure arbitrage position.

Remember, Microsoft's buying Activision for cash. If the deal closes, Berkshire gets cash. If you think they're still risky, sort of exchange your shares for cash in advance. So during the June quarter, the stock did trade above 80, like up into the 80, mid 80s a couple of times. So that was most of the value you were going to get by the end of it. And it seemed as if, you know, I always viewed it once the deal was already in place, the terms were in place, that the core business of Berkshire is insurance. And they were essentially kind of writing an insurance policy that this deal, you know, would close. And there you go. It seems like they did cash in. Just for perspective, it was always no more than like a seven or eight billion dollar position for Berkshire. Market cap of Berkshire is 750 billion right now. Yeah. Pocket change. Pocket change.

Plus, maybe they sounds like they held on to a little bit of it to catch that last little bit of upside. Yeah. One little gravy. Mike, thanks. Switching gears now. A weakening picture out of China. As we mentioned, GDP growing just 0.8 percent quarter over quarter. Meantime, youth unemployment hitting a record high, 21.3 percent. Joining us now, Rushir Sharma, chairman of Rockefeller International. Rushir, welcome. You say you still have to invest in China, though. It's just too big a deal. Yeah. As you know, I've been a long-term bear on China. And so I think that what we need to get correct in China is the growth expectation. And I think that's what the market is doing

finally, which is that when you have a country where the population is actually declining and you have such a large debt burden, there's no country in history that's been able to grow at a rate of more than 2% or 3% under that scenario. Once we acknowledge that, yes, that's what China's underlying growth rate is going to be, then you've got to still invest there just because the size is so big. It's still an $18 trillion economy. It's still the second largest stock market in the world when you combine China and Hong Kong together. And surely we can find some good franchise names to own in China, given the size of that economy. So I don't think China. Yeah.

What does a franchise name in China look like, though, given the issues in the real estate sector, you know, the debt overall? Should you just go with an Asia fund? Do you want just sort of large cap, boring stocks in China? What's too big to fail over there? Yeah. So let's just take a couple of examples out there. One is BYD. You know, I think that it's like we know about BYD and its success on the EV platform and how it's going much more global now after having had a lot of success in China. So that's the kind of franchise name. Then you also have some insurance companies like AIA or even some of the local consumer companies which are there. So I think that it's not the

boring names like those would be the banks and stuff. I think those are challenged. I think it's still in the private sector. It's still these companies which have some franchise value and companies that will benefit from the fact that you have an $18 trillion economy growing at even 2% or 3%. That's about the same growth rate as the U.S. or so. So I think that China for me is that, which is that I've been a long-term bear on its growth rate, thinking there's no way these growth expectations are going to materialize. But I don't take the other side of the trade, which is that, oh, it's become uninvestable now, and so we shouldn't touch China. I think it's just too big and too large an economy to ignore. Well, interesting signal now that everybody's accepted that the growth isn't what was hoped for. You're saying, but don't don't throw it all out. But OK, let's talk about the U.S. because you're very critical

of the impact of Bidenomics and all of the deficit spending that's been going on. Why should investors fear Bidenomics and how do you position yourself to protect yourself from it? Well, you know, like on the other side of the spectrum, just like I've been bearish on China, I've been very bullish on the U.S. All of last decade, I kept saying that this is the comeback nation. This is the breakout nation. But the last two or three years, some of the fault lines which are appearing in the U.S. had me worried, particularly the latest op-ed that you referred to in the Financial Times that I wrote today. What did I point out there? As I was doing the research, what I've unearthed there is just how badly the U.S. fiscal situation has

deteriorated over the last two or three years. To put this in perspective now, the U.S. is running a budget deficit every year of close to 6 percent of GDP and expected to do so for the rest of the decade. Yeah, you said within 10 years, government interest payments will exceed spending on defense and on social programs like Medicaid. So what's going to be the impact on equities? Well, I think that the issue here is going to be that this is negative because I think that for now, all the spending that the U.S. is doing on the government side is keeping growth up. But when you're doing it with so much debt finance growth, it's got to be temporary. And then in the end, that effect wears off. So in the good case, it's just a growth slowdown as the spending is unsustainable and it comes to an end.

The worst case is that you get something much more sinister, like a funding crisis for the dollar. So I think having a bearish bet on the dollar to me is something which just seems like an obvious trade at this point in time. If there was one out there. Yes, the U.S. has endless capacity to finance itself so i don't see any imminent crisis and neither does anybody else but we just need to put in perspective that there is no other developed country in the world today that is running a budget deficit of the size that the u.s is running right or projected to run and this was not the case a few years ago. The U.S. budget deficit was in line with the other countries. So this is a significant deterioration that's taken place over the last couple of years. All right. Rushir Sharma, thank you.

Now let's get a CNBC News update with Courtney Reagan. Courtney. Hi, John. Well, the U.S. is sending additional fighter jets and a warship to the Strait of Hormuz in the Gulf of Oman, that from the Pentagon today, which says it's aiming to monitor Iranian activity in key waterways in the Middle East. Earlier this month, the Iranian Navy attempted to seize merchant vessels, prompting U.S. intervention. The U.S. already bolstered its forces in May after similar Iranian actions in the Persian Gulf. President Biden is inviting Israeli Prime Minister Benjamin Netanyahu to the U.S. for an official visit. Biden had delayed meeting over concern about the prime minister's right-wing judicial takeover and Israeli settlement activity on the West Bank.

The invitation comes just a day before Israeli President Isaac Herzog is scheduled to visit D.C. A tugboat sank in northern Alabama, releasing thousands of gallons of diesel fuel into the Tennessee River. Fuel washed up on the beaches in Florence, Alabama, prompting evacuations and warnings for visitors to get out of the water. The police department said 3,000 to 5,000 gallons of diesel were spilled, and the cause of the accident has not been determined. John, back over to you. Courtney, thanks.

Up next, got to watch the numerator and the denominator, a high-yielding hazard. Mike Santilli looks at the risk of AT&T's soaring dividend yield next. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Communication services among the worst S&P 500 sectors today, thanks to Verizon and AT&T. The stock getting downgraded to neutral by Citi today because of concerns about the use of lead cables by telecom companies. That downgrade dragging shares to a 29-year low. Michael Santoli joins us again with a look at AT&T. Mike? Yeah, John, the selling in AT&T really has taken on the look of a pretty desperate liquidation. People concerned about

those exposures to lead cable, potential health care liabilities and various other things. And, you know, yes, 29 or 30 year low. Here's over a 10 year basis when you see down by half over that span of time. The market cap is now below $100 billion for AT&T for the first time since about 2005. Still a huge debt load. So just a lot of macro concerns. Also dragging down things like the cell tower stocks today. Of course, AT&T and other wireline and wireless networks are big customers there.

What I think is relevant to take a look at is the path of the dividend yield for the stock, because it has been on quite a bit of a ride. So it's obviously above 8 percent right now because the share price is going down so hard. Now, what's fascinating is that in early 2022, AT&T cut in half its payout. The actual dollar value of its dividend went down by about half as was expected. They conveyed that when they were spinning off Warner Brothers Discovery, Warner Brothers to Discovery, it was going to cut the dividend that was right in here. And so you see that the dividend, the stated dividend went down, the yield accounted for, and then the dividend has stayed staying from there and the stock price has gone down so much. So it's a real signal and a message and a lesson about not just grabbing for high stated dividend yields, because this stock's gone down so much. So it's a real signal and a message and a lesson about not just grabbing for

high stated dividend yields, because this stock's gone down, you know, 50 percent in 10 years. It's down huge this year and you've lost many times worth of that cash dividend in the actual stock. And I guess the argument for not buying it here is that they're going to have to cut that dividend because of the operational issues. And that's why the stock has fallen so much. How unique is this? That at least is the market's view right now that that dividend is vulnerable. Verizon also trading where it was in 2010.

So not, you know, not a 29-year low, but 13. I mean, this is a broad issue. Very broad issue. Market really just sort of sweeping aside these stocks, which were once so core and very important both to the economy and to, you know, aggregate investor portfolios. I think it's sort of being placed on the too hard pile. You never know if these liability issues are really going to bite that much. You know, you have a lot of things that have to be considered. You have other companies like 3M are also, and J&J, all of them in the Dow working through a lot of these really long-lived potential liabilities. And no one's to say they can't be absorbed, but investors aren't sticking

around to figure it out. Yeah, a lot to work out for these companies, Mike Santoli. Thank you. Coming up, a big EV pickup price cut, Ford stock sinking in today's session after Ford slashed the cost of its F-150 Lightning. So what might this move signal for the other EV players? We will hear from a Tesla investor after this break. Over time, we'll be right back. Ford is one of the worst S&P stocks today, dropping nearly 6% after announcing price cuts for its electric F-150 Lightning trucks, including a 17% drop for the base model. Meanwhile, Tesla closing higher ahead of its Q2 report coming Wednesday after the bell. Shares are up more than 130% so far this year. Joining us now is Fenway's summer venture partner

and CNBC contributor, Javier Sade, also a Tesla shareholder. Javier, welcome. So given what we already know about Tesla outperforming on deliveries, is Ford kind of throwing in the towel here with a price cut, or is it going to make this,

just going to make it harder for Tesla to move units? I think the market overall is heating up. Obviously, electric vehicles are the future. I don't know if it's a good signal at all. Obviously, the market agrees that Ford is being so aggressive with price cuts to stimulate demand. Margins have to get pinched here, right? But at the same time, if you're a buyer and you're financing this, that's more expensive than it was several months, a year ago. So was this just inevitable because of that? I mean, more competition.

It's economics 101. More competition means obviously both supply and demand. I think that Tesla is in a really good place when compared to most others in EVs. The biggest reason for that, obviously, is first mover advantage. They have a significant advantage in efficiencies and also, enough pricing power. But if you look at what Tesla has done with the cost of their cars, currently the average cost per unit out of the production line is $36,000. That's about half of what it used to be five years ago and is expected to half again going forward in about five years.

Okay, tell me how you think about Tesla as an investor. Is it an auto stock, future of auto stock? Is it an AI stock or is it an Elon stock? Yes, that is what makes this place so interesting. On top of that, I think you missed one thing, John, obviously, is the fact that it is an industrial production company and one that is making all kinds of innovative inroads into American manufacturing. So that's what makes this stock so interesting. And, you know, if you look at what the analysts are saying for the quarter, it's expected to be the best top line yet with $25 billion. I think consensus EPS, gap EPS is $0.81. And, you know, it's worthy of note that Tesla is one of the Magnificent Seven, which Network and you have been talking about quite a bit.

The Magnificent Seven is up by 54% this year. The other 493 stocks are only up 9%. You can argue that's AI. That's great if you owned it over the past nine months, but I'm sort of wondering for folks who are wondering whether they should hold on to it or if they should buy in here what's really for you the justification behind the valuation is it elon is it the ai thesis i mean i get the importance kind of to the u.s of manufacturing, but I'm not sure how that would justify Tesla's uniquely strong valuation. It is definitely on the high side.

80 P2E when compared to peers, GM is trading at six, Ford at 21, give or take, and Toyota at 11. So it is expensive. But I think what people are pricing into the stock is obviously that for every $1,000 in COGS reduction for every car at current run rate

and volumes and product mix, that's another billion of net. So I think you've got to look at it in totality. And if I'm looking at this stock to buy now, I would be very cautious, maybe price average in. But it's definitely an expensive stock. There's no question about it. OK, so finally, with earnings coming up shortly, what's the most important metric for an investor to watch for? Is it margins? I think so.

I think margins is what people are going to be looking at mostly. I mean, growth has been spectacular for the company. The partnerships they have in the charging networks with the other manufacturers, I think on the infra side, that's a sticky capital. But yeah, I think margins is what we're going to be looking at. All right. Javier, good to see you. Thank you, John. Up next, we are counting down to Netflix's numbers. Those earnings are out also later this week. This as the Hollywood strikes take center stage. But is the streaming giant's bottom line really at risk?

We will hear from a former Netflix and Hulu executive after the break. In closing, Bell Overtime returns. Should you buy media stocks? Well, shares of Paramount down nearly 4% today after the debut of the new Mission Impossible movie brought in just $56.2 million over the weekend, making a total of $80 million since opening on Wednesday. That is below the $90 million it was projected to make. The news isn't any better overseas. The movie coming in third place in China, making a little more than $25 million over the weekend. Concerns about the

Hollywood actor and writer strikes not helping that situation. On the other hand, Netflix hit a 52-week high today after analysts said the streaming giant is well-positioned to withstand effects of the Hollywood strikes thanks to its content pipeline and international productions. And Netflix reports second quarter earnings on Thursday. Wednesday, sorry. Joining us now is Simon Gallagher from SPG Global. He's also a former executive at Hulu and Netflix. Simon, is really this strike and the movement that we see right now in media about oversupply? I mean, there are nearly three times as many shows out there as there were 14 years ago. And when supply goes up, doesn't the price you're willing to pay go down? The price you're willing to pay? I think i think we're seeing again i've always said this when i

come on cnbc the the value for money that people are getting out of these services is extraordinary a lot of people will have gone to have seen the mission impossible movie and and spent 80 90 for a family of four whereas netflix tremendous value of 15 all the services tremendous value at around that price point, particularly when you consider the amount of content that they've produced for those services, the amount of originals up from about 370 titles in 2019 to around 1300 titles. But if you're a studio or if you're the distributor, I mean, the price you are willing to pay to the actors, to the writers, right? Yeah. I mean, if you're producing all this content, chasing subscribers,

chasing advertising, and there's all this content out there, isn't there an impact? Well, there's a lot of content out there. And this is what I think the SAG negotiators are missing the point on. They need to go back to the fact that there is more work for their union base out there that's coming in from Netflix, from Amazon, from Apple. They need to recognise that. And I think it's more important about focusing on the way that they're being paid. It's not a pay TV driven model anymore where titles are going into syndication. This is a streaming led financing model and you do get paid up front. That's the nature of the model. But they need to keep in mind the streamers and the networks and the broadcasters and the studios are paying more

per episode for a piece of content. And there's more content being produced. So I really think there's an enormous disconnect in the way these negotiations are being handled. But for investors, I wonder, should there be so much content being produced? I mean, you've got Bob Iger saying that they overproduced. You've got Apple, which is doing pretty well now, always having a relatively more conservative model for how much content they were putting out there. Is, in effect, what we're seeing that there's too much stuff out there, and maybe for the content creators as well at some level for these media companies

themselves, they have to produce less and maybe rethink the balance of volume to quality. I don't think you can look at it and apply the same blanket to everyone, John. I think you need to look on a case-by-case, a streamer-by-streamer basis. And we look at Netflix, and that's why the share price is up like it has been over the past months and since year to date. It's performing very well. They're producing the most content. They seem to be producing the content resonating with consumers. I think some of the other streamers absolutely need to go and have a look. Are they producing too much content? And more importantly, are they producing the right content? So I wonder what happens to some of these stocks, Netflix included, and we'll prioritize Netflix since they're reporting in just

a couple of days. If we do get a slowdown driven by the labor force in the U.S. of the amount of content that they are able to produce, does that bust any business models? Does it advantage anyone particularly? If this isn't just a moment in time, if really the result is, hey, there's a slowdown in how much stuff is actually being produced. It really does highlight, again, the importance of sports, because if you look at this, sports is protected from this scenario. So yes, there is going to be less content that is produced. Yes, there is going to be less content available to put on these streaming services. But I look at Netflix and I have been very impressed with the sports themed content that they've been producing. They don't have live sports rights, but what they do have is drive

to survive, the golf show, the tennis show. They continue to produce content in this space. So in some way that protects them a little bit from this slowdown. Certainly Apple Plus, they're very well positioned with Messi recently signing for the new team and he'll start playing. So that will drive the Apple Plus subscribers. So some of the services are protected better than others. Do you have an expectation for how long these two strikes are going to last? I don't have an expectation because I don't have any visibility into the negotiations. But I go back to the fact, when I look at the numbers and I look at the data, my expectation is that I don't think the negotiations are being managed all that well on the SAG side. I think they're arguing for the wrong things. I think there needs to be a degree of flexibility in what they're asking for. They're pushing for things like they're concerned about generative AI. The world leaders in AI don't know what AI is going to look like 24 months from now.

I don't expect that they should either. But what they should be asking for is the right to lock something in for the next two years and then revisit it. It doesn't necessarily need to be a we'll revisit this in 10 years. So I think like any negotiation, everyone just needs to dial back the levels of angst and try and come to a happy medium. And I'd like to think that SAG will see that. We'll see if that happens. Simon Gallagher, thank you. Thanks, John. Up next, your earnings setup, key names every investor needs to be watching tomorrow.

Plus, a crucial deadline looming in the potential deal between Microsoft and Activision. Everything you need to know after this quick break when Overtime returns. Welcome back to Overtime. We will be getting back into the swing of earnings fast and furious tomorrow. Prologis, Charles Schwab, Morgan Stanley, Bank of America, Novartis, and Lockheed Martin, just a few of the big names before the bell, and Western Alliance, J.B. Hunt, Omnicom, and Interactive Brokers all reporting after here on Overtime. Now, investors also watching a key deadline in Microsoft's big push to acquire Activision.

Steve Kovach here with details. Steve, isn't this just about done? It's like the shot clock. It's almost over. Maybe, sort of. So look, tomorrow at midnight is the deadline. This is 18 months ago when Microsoft and Activision first announced this deal. They said they'd have it done by July 18th at midnight. Well, that's tomorrow at midnight. Still not done. What they can do, however, and they will were likely expecting to hear from them maybe tonight, maybe tomorrow. Some kind of renewed terms to extend the deadline just a little bit to give the UK regulator, the CMA, which has been jamming this thing up the whole way through a little more time to approve this new proposal that Microsoft gave them. It seems like a done deal. It's not done until it's done, of course. But look, there's a $3 billion break fee on here. Activision is poised to make $69 billion instead. You do the math, John. Which way do you think they're going to land? And that's the key, is that both sides

want this deal to happen. I don't think Activision or Microsoft have any daylight between that. These deadlines are to make sure that both sides are working toward the same goal. Exactly. And since they're just about to the finish line, it seems we're probably going to get that extension. Yeah, right. And if this was a couple of months ago, maybe we would have been talking a little differently because it seemed like it wasn't going to happen for so long, especially because of the UK and the FTC throwing a wrench into things. But look, it's they made their case against the FTC. The FTC lost twice last week, both in that case that was heard in San Francisco in federal court and the appeals to the Ninth

Circuit got rejected as well. That was basically the FTC's last ditch effort to block this deal. It's almost certainly going to happen. In all of the drama around will it or won't it and the different arguments, it seems to move almost lost sight of the fact this is one of the biggest software deals of all time. And it's Microsoft's biggest deal, period. Microsoft's biggest deal. Even if you take the dollars out of it, which arguably were inflated based on when this deal was done, this puts Microsoft in a huge position as a provider of gaming titles, fueling Xbox. And what are some of the follow on effects from Sony, from maybe Nintendo and on the PC gaming side that we expect to see once this thing closes? We saw one of the follow on effects from Sony yesterday.

Sony caved. They were the chief corporate denier of this deal. They the Sony CEO was testifying that the chief corporate denier of this deal. The Sony CEO was testifying that this is bad for competition and so forth. Well, yesterday, they signed the same 10-year agreement to bring Call of Duty to PlayStation that Nintendo and NVIDIA had signed. So look, Sony's the market leader. They're going to be OK. This whole battle has been talking so much about exclusive titles, market dominance. That's Sony.

Sony is by far and away the market leader, both consoles and games. And this is Microsoft from a third place position coming after them. But look, it does, more so than what you're talking about other companies, it also brings a question, where does cloud gaming play into all of this? Because the FTC argument, the CMA argument is that cloud gaming, the idea of a Netflix for gaming type service, you pay one monthly fee, you can stream all the games you want instead of downloading them or buying a disc. FTC believes this is the future of gaming. It's the way everyone's going to be playing or a lot of people are going to be playing games. And

Microsoft has an unfair advantage here. That's hard to prove because that's in the future, but they did not make their case in federal court against that. And the CMA is even backing down. Microsoft effectively had to downplay cloud gaming. Right. It was just trying to, in order to get this deal done, they had to say, yeah, actually, maybe it's not. Look at the emails. Like, actually, we don't think it's that big. It was kind of cute to hear Satya Nadella play down cloud a little bit in testimony. All right. That's going to do it for overtime. Fast Money begins right now.