Closing Bell - Closing Bell Overtime: Breaking Down Powell’s Comments That Sent Stocks Sliding; One Of Apple’s Only Sell Ratings On The Street Breaks Down His View On The Tech Giant 1/31/24

Episode Date: January 31, 2024

Fed Chair Jay Powell today cast doubts on the chances of a rate cut at the March meeting; his words sending stocks sliding. Ariel’s Charlie Bobrinskoy and Jefferies’ David Zervos break down his comments and the market reaction. Rosenblatt analyst Kevin Cassidy and Third Bridge analyst Lucas Keh break down Qualcomm’s strong earnings. Evercore Vice Chairman Krishna Guha gives his take on Powell’s commentary today. Plus, Rockwell Automation CEO Blake Moret on the latest quarter and our Julia Boorstin on what social media executives said today testifying in front of the Senate Judiciary Committee. Plus, one of the few Apple analysts with a sell rating on the stock discusses his outlook for the tech giant. 

Well, stocks pulling back after Fed Chair Jake Powell said he doesn't think a rate cut in March is likely. The 10-year yield dropping below 4% today, too. That's a scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, and the NASDAQ, the biggest loser today as communication services and tech weigh on the index. Healthcare, one of the least bad spots. It's like pink as opposed to being red, kind of flat. Coming up, Evercore ISI Vice Chairman Krishna Guha reacts to the Fed's decision and what it could mean for the recent market rally. Plus, Qualcomm earnings are just a moment away. Instant

analysis of the results as soon as those numbers are released. But first, let's bring in our market panel. Joining us now, Charlie Babrinskoy, vice chairman of Ariel Investments, and Jeff Zervos, chief market strategist at Jefferies. Great to have you both. David Zervos, I was like, this is not right. It's always good to have you on a Fed day. And I think you're really good at breaking down that intersection between the Fed speak we get and the market reaction. So your thoughts on the fact that stocks moved lower or further into negative territory today, largely on that comment, we really saw the drop lower on that comment that March was essentially off the table. Your thoughts? Yeah, I think, you know, in the previous segment, there was the use of the word bullying. The market had been bullying the Fed. The market had been pushing the Fed.

They were putting in relatively extreme numbers for the amount of rate cuts and the timing of those rate cuts. And I think many of the Fed presidents, governors and the chairman himself have kind of pushed back on that in most of their speeches and most of their analysis. And the market really didn't listen. And I think Jay just said, look, this is this is kind of what we've been saying, guys. I don't know what you want us to do, but we're not doing that. And, you know, it's just a healthy kind of a healthy kind of thing to you know, I don't see it more as bullying, to be honest. I see it as kind of a child that's gotten a little bit too unwieldy, wants its candy now, is yelling in the grocery store. And the parent kind of saying, you know, you're not going to get your candy right now.

You don't need it. You had a lot. And we had to take it away. And we need to be careful with it. So I think they're doing, you know, largely what they said. I think the market got ahead of itself. But really, this is not a big deal. This is a pretty small pullback. The fixed income markets are acting the way they're supposed to, which is kind of hedging equity assets a little bit today, which I like to see that correlation back. And, you know, I think we'll forget about this soon enough. And we'll be talking correctly about, you know, a few cuts later in Q2 and then we'll see how Q3 comes in and Q4 comes in. But as Jay said, this is really about the data. And these cuts are not

because the world's coming to an end. It's cuts that are really what we like to call victory cuts. They really won the battle. They're being a little cautious and careful. And I think that's correct. And they're being careful on the politics. But generally speaking, you know, they can bring it down a little bit. They're just not going to let the market whine and scream and yell and throw a tantrum about wanting to get their cuts sooner. And that's, I think, a little bit of what today is. OK, Charlie, do you see it the same way, especially when we talk about so-called victory cuts? I mean, the other piece of the puzzle for equities specifically is the fact that we did see this big post-earnings weakness in big tech,

despite the fact that Alphabet and Microsoft were not terrible reports, but I think the expectations have been so high going into them. Yeah, a couple of things on those two topics. Nobody likes to be taken for granted. The Fed presidents got embarrassed by being so wrong about inflation and now the markets have been saying we don't care what you say

we know what you're going to do you're going to cut a 90 chance you're going to cut in march and i think a number of the fed presidents said don't take me for granted this is an important position i've been placed in um don't think you can say what I'm going to do two months from now. And so they Chairman Powell just said he didn't say they're not going to cut in March. They just said, based on everything happening today, that's not the base case. And so I think he's just he's putting his foot down to say, don't take us for granted, because frankly, it was silly that we had a 90 percent chance of a cut in March. That was just too high. That's overconfidence. The second thing that's clearly going on is that the tech stocks, and you and I have talked about this almost every time I come on,

were clearly priced for perfection. They were at massive multiples. Some of these names, the Magnificent Seven, over 35 times earnings. And what we have seen is when people think that you can just buy certain names, you can buy the broad market and just go away, then that's people are too confident. And so there were the expectations were too high. I sent you a graph that from 2000 to 2010, Microsoft stock went nowhere, despite the fact that its earnings doubled over that time period. So you can get a situation in which the earnings expectations are just too high. And that's what we had here. And I think there is a risk here that some of these big names are going to come

down substantially. Right. A lot of other differences in Microsoft between now and then, though. Speaking of tech, though, Qualcomm earnings are out. Christina Partsenevelis has them. She's at Qualcomm's headquarters with the numbers. Christina. Yeah, in San Diego. So Qualcomm posting a big beat with earnings per share of $2.75 adjusted. That's higher than all Wall Street estimates right now, according to Faxit, and the biggest earnings beat since November 2020. If we're talking about revenues for the December quarter, that came in at $9.92 billion with gross margins at 31%. So both of those were also beats. The only weak business

I noticed in the segment was the Internet of Things. IoT is something that we also saw from AMD yesterday. It's a smaller portion, but worth mentioning that there is a trend. For Q2 guidance, Qualcomm does see adjusted EPS earnings share, of $2.20 to $2.40, which is higher than estimates. Revenue, we're not going to compare based off of the estimates we have. But moments ago in this room, I was able to catch up with Qualcomm's CFO, who said the beat in the December quarter was primarily driven by their smartphone or premium tier smartphone business, so those more expensive phones. They are noticing customers are willing to pay a lot more for their phones as they become, you know, your go-to personal computer, TV, et cetera.

And they believe that this will also help drive generative AI, AI on the edge, as phone replacement cycles actually start to slow down. So they think that this could help revitalize the phone industry. He also said, and this is a piece of news, that they signed a multi-year agreement with Samsung to provide chips for their premium smartphones. There's that premium again, starting from 2024 onwards. I asked what multi-year was. He wouldn't tell me, but expect a few years. I have more about Qualcomm's chip agreements when I chat with Qualcomm's CEO in an exclusive interview on CNBC at 7 p.m. Eastern time on Last Call. John. All right. Thank you, Christina. And yeah, that arrangement with Samsung on premium phones has been big for Qualcomm

in the past. David Zervos, you were talking about the unrealistic expectations that some in the markets had about what was going to happen with rates and cuts. And I wonder, I mean, we're down off the highs today, certainly. We're not used to too many down days, but this isn't down that much. How are you thinking about the next important signals from here that the market needs to pay attention to? John, I think it's really, as the chairman said, as Jay said, this is about data and how comfortable they are with inflation and how the employment picture evolves. We're as data dependent as I can remember at any time in the Federal Reserve's policy reaction function.

And I think they want to go. They want to declare victory. I think they in spirit have already done it by telling you this is what they want to do, but they're going to be cautious and careful. And I think they're right to be cautious and careful. And I think the market's probably going to reward them in the end for maintaining that credibility and not kind of giving in too early to those that are whining about, well, we need to have our rate cuts because maybe something's going to go wrong. You know, if something goes wrong, they can cut and they can cut pretty fast. They have the put. You know, the put is back. We all know it. If they need to go, they can start doing 50s and 75s if something really bad happens. So let's let

them do their job, make sure inflation expectations stay anchored. And you know what? We are pretty much at full employment. This is a 3.7% unemployment rate. Their job is maximum employment and price stability. Guess what? Maximum employment, we're there. Price stability, we're not exactly there. They think they're restrictive, so maybe they can bring that restrictiveness down a little bit because of their views on inflation. But we're talking about tweaks here. We're talking about a 25 here to 25 there. The market going to

a full 150 of cuts super fast. You know, that's that's consistent with a view like what Jeff Goodlock might be saying, where there's a big recession coming. Sure, that could happen. And the Fed will have your back. And that's actually a really good thing for risk assets, something we haven't had in the last two years. Finally, last word, Charlie, you talk about big tech stocks being priced for perfection. The Russell certainly is not. It was down close to two and a half percent today, I believe. So how should investors think about the smaller stocks where they're supposed to be able to find some value in this market, but they seem to get beat up worse on these down days? There's no doubt that smaller stocks are more sensitive to the economy.

There's no doubt that the economy is sensitive to rates. So this was bad news for housing stocks, for general cyclical stocks. I think that small cap stocks are attractively priced, but there's no doubt that they pay more attention. They react more to the U.S. economy. And Chairman Powell's comments today, all else equal, were not great for the economic outlook. He seems to be stubborn. He's not paying attention to the data in the way that he says he would. The data has been overwhelming that inflation is coming down fast. And so it's disappointing to people who are running businesses that are

dependent on the economy. OK, Charlie, David, thank you. And now it's time to bring back our senior markets commentator, Michael Santoli. Mike, what are you watching? You know, John, panning out a little bit just to look at a couple of more cyclical parts of this stock market to see how they perform. This goes back to October 2022. It's essentially the low point of the 2022 bear market. Just to suggest that the equal weighted consumer discretionary and industrials have managed to hang in there and hold their lead and absorb the idea that we have a resilient economy. So as much as we, again, talk about the dominance of the mega cap tech stocks, and they were up a lot more than this. But compared to the average stock in the S&P 500, these areas have managed to recover. Now, this is from earlier today.

They're down a little bit more. But as long as this is the case, the market's sending a decent macro message. I definitely wanted to hit, though, on the financials today. Somewhat shocking loss and new credit reserves from New York Community Bank caused a big drop in that stock and also regional banks as a whole sort of in tandem with that. Now, some unique aspects of the NYCB charge and the reset of their of their balance sheet, which is that they made some acquisitions. They got above 100 billion in assets that put them in a somewhat different category in terms of being able to account for certain loans that might sour. All that being said, look at how much the regional banks have traded with the office REITs. So it's basically commercial office space is the locus of concern of this area.

And look, we are up off the lows pretty substantially. So, yep, we have another gut check today in this area. I think it's a somewhat lagging indicator of where the risk is. It's such a widely watched area of commercial real estate. But something to be aware of. You'll want to see how these things settle out after a pretty good sell-off today in the smaller banks. Yeah, it's a little odd to me, Mike. The KRE closed down almost 6%, 5.85%, I believe, under 50%.

And so many people lately have been telling us, oh, the office thing is overdone. A lot of these banks aren't holding that much office after all. So is that not true? I don't think that that's an invalid point people have been making. Because, again, the NYCB thing, if you actually look into what they were doing, there were just a lot of moving parts to it. It wasn't as if things turned bad all of a sudden. They did make a recognition. Maybe there are some other smaller banks that have to do it. I recall, though, when Goldman Sachs reported earnings, they said their owned office commercial real estate, they'd already written it down and it

wasn't something that really blew a hole in the balance sheet. So, look, it's an overhang. I just don't think it's necessarily one that's really going to overshadow everything else that's going on in the economy and in the financial sector. OK. Mike Santoli, thank you. We'll see you a little bit later this hour. Wolfspeed earnings are out. Christina Parts Nevelis has those numbers, too. Yeah. So let's start with the revenue. It was a beat, not a massive beat, $208 million versus estimates of $206 million. In terms of earnings, the company did post a loss, but the loss was not as big as expected, $0.55 per share. The street was anticipating $0.66.

When we talk about guidance, this is a company that makes silicon carbide. It's used in EV products. That's probably what they're most known for. They see Q3 revenues of $185 to $215 million, which is lower than what the street was anticipating. Their loss per share, though, for Q3 revenues of $185 to $215 million, which is lower than what the street was anticipating. Their loss per share, though, for Q3 falls pretty much in line. They did also warn of about roughly a little bit over $10 million in startup costs that would be incurred specifically in Q3 to their new manufacturing facilities.

And that is also affecting their underutilization rates, too. So you can see that it was a slight beat on revenue. The stock was down initially 5%. It's coming back a little bit, what, down 2% at the moment. Guys? All right. Christina, thank you. Up next, what Qualcomm's results could mean for others in the chips industry and maybe some end devices, too.

Plus, Apple shares are down more than 3% since Barclays cut the stock to a sell at the start of the year. Coming up, that analyst behind that call speaks for the first time since the downgrade and tells us what he expects from Apple's earnings tomorrow. Overtime is back in two. Welcome back. Align Technology earnings are out. Bertha Coombs has the numbers. Bertha.

That's right, Morgan. Align Technology beating on both the top and the bottom line, coming in with adjusted earnings of $2.42 a share compared to an estimate of $2.18. On the top line, revenues came in at $957 million versus $934 million. That's even as the company was talking about that they did have an impact in terms of the currency. Sequential increases they're seeing for clear aligners for adults and non-comprehensive cases grew. They saw growth in Canada. They also achieved 17 million Invisalign patients for the year. 4.7 million of them are teens. And as we know, teens are an important market when it comes to tooth alignment. Back over to you, Morgan.

All right. I'll take it, Bertha. And yet another... Brace yourself. Yes, brace yourself. That was my adjective. And yet another medical device company not having anything to do with weight, though, that's rebounding from lows earlier in the year after that GLP-1 fright. All right. Meantime, Qualcomm shares are popping after an earnings beat. Joining us now are Kevin Cassidy from Rosenblatt and Lucas Kay from Third Bridge. Guys, welcome. Lucas, I'm looking through these numbers.

It's beats across the board except for IoT. And then pretty much in-line guide for Q2. Is the smartphone market now stabilized? Thanks so much for having me. We saw a bit of struggle in 2023 with just global handset shipments, smartphone shipments. But towards the end, even Q4, we saw slight increases, signs that the industry is indeed recovering. Although a bit slower than expected, we're starting to see a bit more stabilization in the smartphone end market. Our experts have sort of been in line with Qualcomm's expectations of a recovery in the Android customer base, certainly helping Qualcomm's performance in the SEND market.

Kevin, this is good news, particularly for the core business. For the past couple of years, Cristiano Almond's been trying to get us to focus less on the smartphone business and more on things like automotive and IoT. Automotive outperformed, but IoT was actually weak right at the time when Apple's coming out with the Vision Pro that doesn't rely on Qualcomm's technology. Any concerns there? No, we think the, oh, first, thank you for having me on, John. Nice to be here. Yeah, the headset market or the virtual reality has been around for, you know, five years or so, and Qualcomm has maybe 50 designs around the world with meta being the lead, but it's never really been a strong category.

I don't see that as a make it or break it for Qualcomm. The idea with Qualcomm is they're taking their same platform that goes into all these smartphones and bringing them into IoT applications, whether it be a VR, AR headset, or even a camera system, all different types of applications in IoT. And in general, the IoT market has been weak. It's just as lead times came in for semiconductors, companies don't have to hold as much inventory. So there's just an inventory correction happening there. This happened to the handset market through 2023, and now we're seeing the handset market picking up again. Lucas, I know you've written about this, and I'm curious whether this is something you'll be listening to closely on the call. And that is, especially as we do see these numbers around

handset, whether AI PC, whether AI, you know, applications to smartphones, whether this is actually becoming realized and is going to start a new super cycle. What would you need to know to be convinced that that's actually happening? It's definitely a real thing, as you point out, although in the early stages. But the big growth story here for Qualcomm is this whole AI PC story, generative AI's movement to the edge, if you will. And that will start with this PC and desktop market and eventually trickle down into the smartphones and the handsets. We're seeing Qualcomm take a full custom approach within their Snapdragon X Elite platform,

using their custom Orion CPU and Adreno GPU, specifically targeting workloads that they'd like to be optimized in and kind of prove to customers that they have the best performance in the market. Kevin, your thoughts on China, which we know is a key market for Qualcomm, as it is for many semiconductor companies. As we do come into this election year, we do see tensions between the two countries affecting the semiconductor market with perhaps more regulations afoot? Yeah, so it is always an issue. Qualcomm has been able to work around this. They have a technology that is so necessary. If the Chinese handset manufacturers want to be competitive worldwide,

they're going to have to use Qualcomm. So yes yes, it's an issue. But, you know, I think Qualcomm can withstand it. OK, Kevin Cassidy and Lucas Kay, thanks for joining us. We'll share Qualcomm trading higher. Well, the Fed hinting rate cuts may not be in the cards for its March meeting. Up next, Evercore ISI Vice Chairman Krishna Guha on whether that could put the recent market rally in jeopardy. Stay with us. The Fed holding rates steady, marking the fourth consecutive time the Fed has not changed rates. Meantime, Fed Chair Powell saying

a March rate cut, not likely, not the base case. So what does this mean for stocks and bonds? Let's bring in Evercore ISI's Krishna Guha, who heads their global policy and central bank strategy team. Krishna, I actually want to ask you about bonds first, the fixed income picture. We did see yields come down on this, which I guess is no surprise. But it seems pretty clear which direction overall rates are going to go in. So what does it mean for fixed income investment here? Oh, yeah, for sure. I don't think there is anything here that changes the fundamental picture, which is that the Fed rightly assesses that the inflation data is moving consistently in the right direction. And before very long, it will be appropriate for them to begin cutting rates.

The new news, as it were, is just Powell being very clear that March ain't happening, at least not unless there's some kind of break in the data, a labor market scare, let's say. So some folks who were over their skis on March, obviously that had to be taken out today. We've always been focused on May or June. But I'd say with today's good ECI wages, May is looking pretty good. And nothing Powell said threatens that story. OK, so how defensive should investors get both when it comes to sectors within equities and then when thinking about balancing their portfolios for 2024 and beyond between equities and fixed income? So I think there is no scary new news out of the Fed today. Their take on the economy is fundamentally constructive.

Growth is strong. Labor market is strong. taking a little more time to accumulate some more evidence that inflation really is durably getting nailed down at 2%, not just touching 2% on some high-frequency annualized measures. Truth is, they think that is what's happening. It's just they look around and think, things are great. Why rush? Why not get that extra that extra information? So I do think that even though the market was equity market was pretty ugly today, I do think there's broad support here for a good news story and equities potentially spreading out beyond the, you know, the big tech names. The economy is good. The Fed will be cutting rates. Yeah. I mean, he was very

clear, Powell was, in basically saying that what they're concerned about is not necessarily that inflation spikes back up again, but that it becomes entrenched at a pace that is higher than 2 percent. And that is perhaps part of the reason they're moving cautiously here. And I believe that was in response to a reporter asking about the fact that we've seen, including the latest PCE report, core PCE running at less than 2 percent on a six month annualized basis. So it raises the question on whether the Fed is actually getting behind the ball again in terms of that inflation picture. I wonder whether you think that's a real risk here and if it is, what it would look like if it materialized?

So I would worry if the Fed looked like it was going to wait until, let's say, the second half of the year before cutting rates. I would worry if they weren't telling us that they do now see themselves as being back in the two-sided risk management business. But that's not what's happening, right? I think we should read this Fed statement, in particular Powell's comments today, as saying, not much, guys. That's a bit of a rush. We don't need to rush. But orienting to us towards cuts starting in May or June. And, you know, as I said, I lean May. I think they'll end up delivering five, maybe six cuts this year. So I just don't think that that is deeply concerning in any way. You're right. Six-month annualized inflation is already clocking to on core PC, actually a tick below. But of course, of course, some of that is an assist from falling goods

prices. They are not sure that's going to continue. If you X out that falling goods prices, six-month annualized inflation is running more like 2.5. An underlying inflation measure that New York Fed uses puts it at 2.3. Those numbers will come down as and when a housing related OER cools off. They'll come down over time as wages cool off. It's all working. Just be a little patient. So we will. Krishna Guha from Evercore ISI.

Thank you. Thank you. Now, Nextracker, a company whose technology helps solar operators collect energy more efficiently, just reported a beat and a raise conference call starting right about now. The stock surging here in overtime up better than 11 percent. Revenue was seven hundred ten million versus expectations of six. Eighteen non gap EPS was was 96 cents versus expectations of 50. NextTracker raised the annual guide, which now is just Q4, to 2.45 billion at the midpoint versus 2.35 billion before. I spoke with CEO Dan Sugar earlier today about the company's technology and prospects.

We can achieve typically 30% more energy over the course of the year so it's it's a huge boost in the amount of energy production and new innovations in solar cell technology for example everyone knows that the solar cells can make electricity when the sun hits the front of the pad the panels but they also are bifacial meaning they can use reflected light so we've optimized our systems for to deliver the most amount of energy with this technology over the course of the year and as a result the return on investment for owners of these independent power plants that are producing

energy from solar is very attractive. Catch that full interview on Overtime's LinkedIn after the show, Morgan. Interesting space, particularly because solar is growing so quickly as a percentage of the renewables that utilities are using. Yeah, and it's certainly a big move for that stock in what has been a very broad-based down day for the market. Yeah. Well, it's time now for a CNBC News update with Bertha Coombs. Bertha. Hey, Morgan.

A federal judge has dismissed Disney's lawsuit against Florida Governor Ron DeSantis. Judge Alan Windsor ruled that Disney lacked legal standing to sue DeSantis on allegations of retaliation after Disney publicly criticized a controversial parental rights education law backed by the governor. Colorado Secretary of State Jenna Griswold has asked the Supreme Court to bar former President Trump from the Republican primary ballot in Colorado for his actions as part of the January 6th attack on the Capitol. That in a briefing, the high court will hear arguments in that case next week. The Biden administration announced today that it is going to try again

to forgive student loans for borrowers who are struggling financially. After the Supreme Court struck down an executive order that would have canceled up to $20,000 of loans for millions of Americans, the administration has been looking for other ways to relieve student loan borrowers. This most recent move would rely on the Department of Education rulemaking process in order to give borrowers relief. Back over to you. Bertha Coombs, thank you. Up next, Mike Santoli looks at just how closely investors should be paying attention to the Fed funds futures market when it comes to the central bank's rate strategy. Stay with us. Welcome back to Overtime. Fed Chair Powell said the Fed is not ready to cut rates yet.

But what is the Fed funds futures market predicting? And is it a reliable predictor? Let's ask Mike Santoli. Mike. You know, Morgan, historically, it's not that reliable once you get out beyond a few months. So much has been made of this perceived rift between what the Fed funds futures market was implying about rate cuts, maybe five, six of them by the end of this year and the Fed pushing back against that. Well, this is from Jim Reed at Deutsche Bank, and he kind of wanted to point out that at inflection points, the Fed funds futures market often gets it wrong or overanticipates a change. Now, what this is, is the actual Fed funds rate here in blue.

It's kind of where it was in a year. And this is how wrong the Fed funds futures market was in either direction at the time. Right. So in other words, we've been anticipating a much easier Fed for a while right now based on Fed funds futures. They hiked more than anticipated. And this is the reverse back here, back in the early part of the global financial crisis. Basically, the market didn't think we were going to kind of go right to zero and stay there for very long.

What this means is not that you can dismiss Fed funds futures market, but that it's not the be all and end all about where rates are going or even should go or even where the other markets like stocks need them to go in order to to sort of stay intact right now. So just a reminder that there's a lot of whipping around. It's based on a lot of hedging and various scenario analyses. And it's not just some kind of pure signal of the future. Right. Like one of those Marvel alternate universes, I guess. scenario analyses, and it's not just some kind of pure signal of the future. Right. Like one of those Marvel alternate universes, I guess. The future one, yeah.

Social media CEOs in the hot seat on Capitol Hill, meanwhile, over protecting kids on their platforms. We've got the highlights, including an apology to the families of victims. Next. Plus, Andreessen Horowitz, co-founder Ben Horowitz, on how regulation is impacting tech innovation, including AI. The CEOs of Meta, X, Snap, TikTok, and Discord testifying on Capitol Hill today over what the social media companies are doing to protect children from being harmed on their platforms. Our Julia Boorstin has the highlights. Julia. Well, John, senators on both sides of the aisle attacking the tech CEOs for not doing enough. There was one unusual moment when Senator Josh Hawley pressed Meta CEO Mark Zuckerberg, asking if he's compensated any victims for the harm Meta's platforms have caused. Zuckerberg saying he has not. Hawley calling on those families to hold up pictures

of their children, prompting Zuckerberg to apologize. Take a listen. Would you like to apologize for what you've done is terrible. No one should have to go through the things that your families have suffered. And this is why we invest so much and are going to continue doing these streaking efforts to make sure that no one has to go through the types of things that your families have had to suffer. Met following up with that apology with a blog post saying, quote, these are complex issues, but we're optimistic we can continue to collaborate with lawmakers and our industry peers to help create safe, positive experiences for teens online. This, as a number of senators today called for reform of Section 230, which shields all the tech platforms from liability for content shared on their platforms. Morgan.

Julia, thank you. Regulation, a key topic in my exclusive interview yesterday with Andreessen Horowitz, co-founder Ben Horowitz. I asked about plans that he disclosed last month for the VC firm to begin making donations to political candidates who support what it sees as, quote, advancing technology. It's kind of an interesting kind of path that it took. So, you know, for years there was no regulation on software. And a lot of that was just because most software was sold to other companies doing other things as opposed to consumers. And that kind of started to change with the consumer Internet.

And I think what all the policymakers realized was like, well, this is going to affect everybody, how they live, privacy, etc., etc., so we need to start regulating these areas. But you have to be careful because, you know, one of the things that I'm always struck by is when I'm in Europe, they always say, we're the leaders in regulation. We're behind in innovation, but we're the leaders in regulation. I'm like, you guys don't realize those two things go together? That's the same thing. You outlaw people from building stuff, and they don't build stuff,

and that's just how it works. So it's really, really important, particularly now, particularly when not only do businesses have to get to the future, but our whole government has to get to the future in order to be competitive with China, in order to be competitive with Russia, in order to be competitive with Iran. And so we have to be very, very careful not to overreact to certain incidents, these kinds of things. I mean, the internet we could have shut down, there was lots of cyber crime on it, crime that we never

had before, but the benefits were very large. And we see that with crypto, with bio, with AI, and we just want to make sure that the regulation is correct. Because one of the things that kind of regulation does, in addition to slowing down the whole industry is it completely freezes out academia so that if you're a professor you no longer have the tools to do ai because they've been outlawed because they outlawed physics and or they outlawed math in this case so you know we just have to get it right it's very complicated it's a new technology and so you know we need to do our part to make sure that, you know, America stays dynamic. At a time when there is this bifurcated debate about AI and the

approach to developing and deploying it, what's been framed as this accelerationist versus doomer debate? I asked Horowitz about his approach as A16Z is seen as firmly rooted in the accelerationist camp and the nuances that are involved. Every technology we've ever built has had, you know, from the plow to nuclear to the internet, has had negative consequences, has had consequences of job displacement, but they also had great benefits and so we just have to make sure that the regulation you know curbs the consequences without eliminating the benefits and a lot of times when a technology is evolving that's hard to figure out so that's where we can come in because we're at the forefront and

we're going to put a big effort into that this year. Horowitz, John, is particularly focused on AI, also health and bio and biopharma and crypto, all areas we know where the debate around regulation with some of these future technologies and applications is swirling. And I'll just bring it full circle here. And that is the debate around AI and regulating AI in large part stems from, at least in D.C., from some of the unintended consequences that are now being dealt with around social media. And I think the flip side debate or the counter argument to that is we're still not seeing very meaningful regulation on social media, but you're going to regulate AI where we're talking about possible unintended consequences.

I'm not going to weigh in with my opinion one way or the other, but that that's part of this discussion. We've got some definite consequences on social media with the Taylor Swift deep fakes. Exactly. Yeah, it's interconnected. Well, shares of industrial automation giant Rockwell Automation plunging after disappointing earnings and a trim to EPS guidance. Up next, the company's CEO on how supply chain restraints and high inventory levels are impacting the business and the rest of the industry. Stay with us. Welcome back to Overtime. Shares of Rockwell Automation fell more than 17 percent today, making it the second worst performing stock in the S&P 500 after fiscal Q1 earnings results fell short of expectations.

Joining us now to discuss Rockwell Automation's chairman and CEO, Blake Moret. Blake, it's great to have you on the show. And I am going to start there, given what we saw with the stock. EPS missing on lower revenues and margins. You maintained your full year guidance, but EPS below midpoint, below consensus. I guess walk me through the impact of supply chain and high inventory and what perhaps that's clouding in terms of fundamental underlying green shoots. Sure. So in the quarter, we did see continued strong underlying demand. So we did see a double-digit sequential orders increase up from the trough in Q4. As we've talked about in the past, we've seen our distributors

reducing the inventory that they're carrying, and it's still taking a few more months before they'll get to a certain equilibrium that will then allow their orders to us to reflect that underlying demand. So that was the positive news in the quarter. On the negative side, we missed our shipments and we missed our shipments because we're continuing to work down the last of the constrained product lines that were suffering from component shortages. And at the same time, we're shifting our processes to be able to handle new incoming orders with a much faster lead time so that we can book and bill, if you will, in the quarter. So over the next couple of months, as you work through these inventory gluts or this inventory correction,

what is it going to take? What is going to spur that new demand, especially at a time when, and I'll take the U.S. as a good example, at a time when we know manufacturing and the industrial economy more broadly has been very sluggish? So we continue to see good underlying demand in a lot of the verticals that are important to us. Even though we've seen some slowdowns in electric vehicles, for instance, those automakers are still investing in EV as well as in gasoline-powered cars as well as hybrids. And we have good readiness to serve in those areas. Food and beverage, again, is investing a lot in resilience of their existing operations. Life sciences with some of the new medicines like GOP1 formulations and things like that. And then, of course, with energy, traditional energy applications, as well as

the companies that are investing in the energy transition. So we're continuing to see that underlying demand, but our orders for the last couple of quarters have been masked a little bit by those high inventories at our distributors as they work off what they perhaps overordered during the supply chain shortages in 2022 and 23. Okay. Blake Moret, thanks for joining us. Rockwell Automation CEO. Well, Amazon, Apple, Meta, all three tech giants are going to release earnings after the bell tomorrow. And up next, the first analyst to downgrade Apple this year tells us what he expects from that report. Plus, tonight tonight don't miss one of the giants of the fixed income space bill gross on last call reacting to powell's comments today overtime we'll be right

back welcome back to overtime the big tech earnings parade rolls on tomorrow the world's second largest company by market cap barely apple reports barely. Apple reports after the bell. And joining us now is Tim Long from Barclays. He has $160 price target. It's one of the few underweight or sell ratings. Tim, okay, so, you know, Apple isn't where it used to be, but it's closer to there than it is to 160. I'm not sure if you believe that this particular report's going to tell us much that's relevant about

Apple since they don't have new product introductions beyond the Vision Pro. So what's important here? Yeah, look, I think we got to put this in context a little bit. It's been four or five pretty weak reports in a row for Apple. So I think it's going to underscore just some of the issues that Apple's having, kind of coming off a pretty strong COVID area and lack of new products that people are excited about. So for this quarter, yeah, there's not a lot interesting. We'll still be looking for iPhones, see what's happening with the services line. Our view is we're going to see a little bit of weakness, and whatever guidance they give for the March quarter will likely be below what estimates currently have in there. So we think

some of this is macro, some of this is just lack of compelling product, and some of this is catch up from a strong period. And then our call is also that we don't really expect too much from the next iPhone coming in the September timeframe. So we think it may be a little bit more longer lasting here as far as this weakness that we've been seeing recently. So what would it take for you to not feel so bearish on Apple, given the fact that you did recently downgrade? Yeah, look, I think it's a tricky stock because it certainly disassociates from fundamentals. The way the stock has done last year, the stock was very strong. It was up 50 percent or so. And basically every quarter was more or less a guy down.

So, you know, we would like to see that valuation come more in line with the fundamental performance of the company. We would like to see a little bit re-energize the growth dynamic as well. Right now in the near term, which is why we went to the underweight rating, we don't really see anything that has the prospects to return this back to a more consistent growth dynamic. Okay. Tim, thanks for joining us. Tim Long of Barclays, ahead of Apple's earnings tomorrow. Thank you. We also get Amazon and we get Meta.

So the mega cap, magnificent seven earnings parade rolls on. It's going to be a very action-packed overtime hour tomorrow. We do, but on Apple, you got to be careful because in the core, the phone, they're not losing. In the PC business and Macs, they're not losing either. Then you got

watch, AirPods, App Store. They're still relatively strong. So there you go. They're also sitting on a giant cash pile, which investors like in an uncertain environment. They do. All right. Well, that's going to do it for us here at Overtime. That's money starts now.