Closing Bell - Closing Bell Overtime: Chipotle & Klarna CEOs; Microsoft and Alphabet Kick Off Big Tech Earnings 4/25/23

Episode Date: April 25, 2023

The major averages fell today; it was the second straight negative session for the Nasdaq. Wedbush’s Sahak Manuelian on what areas of the market he likes now. Earnings from mega-cap tech stocks Microsoft and Alphabet, plus Visa, Chipotle and Texas Instruments. Chipotle CEO on the latest quarter, input costs and hiring. Klarna CEO Sebastian Siemiatkowski on the state of the consumer and fintech. DA Davidson’s Gil Luria reacts to Microsoft’s quarter, including Azure. Our Deirdre Bosa on what Alphabet CFO Ruth Porat told her about the quarter while Rosenblatt’s Barton Crockett reacts to the search giant’s quarter. 

Basically closing out the lows of the day for stocks. The S&P is well logging its worst day in more than a month. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fort. It is one of those afternoons of earnings. Busy, busy earnings season day. Our team of reporters is standing by to bring you the results from Microsoft, Alphabet, Visa, Chipotle, and many more. That's a lot. Plus, we're going to bring you a first on CNBC interview with Chipotle CEO Brian Nickell, ahead of that company's call with analysts. All right, but let's get you set for this busy hour of earnings.

Joining us here is Sahak Manuelian, head of equity trading at Wedbush Securities, on set with us. Thanks for being here. Thank you, Morgan. All right, just before we start getting into specific names, let's talk a little bit about the market action we did see, because we saw the major averages under pressure. It's been a mixed bag, essentially, for earnings so far. And Treasury yields under quite a bit of pressure as well today, too.

Yeah, it's been a very tough day for equities today, for sure. But by and large, I think Q1 earnings has been somewhat of a relief rally for investors. We've seen some decent results and we've seen some good results with some good guidance, most importantly. And I know one can counter back to that and say GE, GE Healthcare, McDonald's, Cadence Designs all this morning with some pretty decent results, with some pretty decent revisions for the full year, yet these stocks are all down. So a lot of moves have happened already coming into Q1, and some of these earnings were pretty solid, which is good to see. And any of the softness that we're picking up on the back of earnings revisions, I think will ultimately prove to be a buying opportunity for equities.

Given the fact that you do have this uncertain macro environment, I mean, is the way to think about it as an investor that a reiteration or we'll say a flat in terms of full year guidance is the new up? That could be the new up. But, you know, I think that investors really need to think about where guidance is where guidance is going and based on what reports we start seeing is whether or not these companies will actually get to these metrics that they've laid out and so the bar has will continue to kind of ratchet up higher as as we come out of the doldrums from 2022 but there's a lot of tailwinds for stocks. And to your point earlier about the cross currents of various headwinds, tailwinds and the macro backdrop, there's so many different moving parts today than I can remember in a very long time. But I think given, you know, a multiple of tailwinds for stocks, we could see any short term weakness like today end up proving to be a pretty decent buying opportunity for equities, given what fixed income assets are now doing. And I want to mention Microsoft and Alphabet are both out.

Those stocks moving after hours. We're looking through those reports, and the reporters will bring you details on those numbers as soon as we've got that all nailed down. And I also want to highlight for the viewers as well, neither of these companies gives guidance in the release. Alphabet doesn't give guidance at all. You can expect guidance from Microsoft on the call. But when it comes to Microsoft, my concern is if the company's model is a four-legged stool,

one leg got kicked out last quarter, right? And the consumer, more personal computing. And so does Azure, intelligent cloud office 365 kind of take some take some hits does it get wobbly when we get that commentary on the call so that'll be very important and to your point the the call is where these guys will give guidance and it'll be very important to what they say for Azure and grow and and cloud growth will be what I think much of cloud growth will be what I think much of the focus will be around.

We think they come to like a 30% number or a low 30s number. We think that they do hit that. I don't know what just came out, but that's where we think this comes. And then, you know, one of the other stools now is the AI and the chat GPT, which has been most of the recent run-up that we've seen.

Microsoft's had a huge move up as of late. We'll see what they say in terms of guidance, but we're still pretty bulled up on the whole story and around cloud growth. And, John, within the recent regional financial crisis that we've had, it'll be interesting to see if they come out and talk about any of the financial companies and where their plan spend is going forward in terms of cloud. We think government spending has been pretty decent for them. We'll hear about that, I'm sure, on the call. But yeah, that's where we're at. We like Microsoft here still.

What about Alphabet, particularly YouTube in Alphabet? Because that took a big hit last quarter, you know, kind of year over year. And a question is, does that continue? How does a weaker consumer perhaps feed into that based on what we heard from UPS this morning? What's going on with retail, e-commerce? How much of that reads through into the color on guidance anyway? Hold on. Do we have the numbers? We have alphabet. Deirdre Bosa has those numbers for us. Hey, Dee. What about chairs? They are up more than 4%. It is a slight miss on the top line. Revenue coming in at $69.8 billion. Excuse me, that is a beat. $69.8 billion versus 68.9. EPS, we're not going to compare, but it came in at $1.17.

Cloud also slight miss, but we'll call it in line coming in. In terms of that cloud revenue, $7.45 billion versus $7.49. So rounded up, it's about $7.5 billion. YouTube also beating. Remember that this has been sort of a weaker growth spot in recent quarters. That coming in at $6.7 billion, $6.6 was expected. We'll continue to dig into this and bring you more as we get it. Back to you. All right, Deidre, thank you. YouTube is one of the things that I was concerned about. So now let's bring in CNBC's senior markets commentator, Mike Santoli, talk

about these numbers we've got so far. Mike, your thoughts. Yeah, John, I don't think you were alone in being concerned about the various inputs for Alphabet. It seems to me it was a little bit under-owned. People were suspicious of it heading in. So that's why you got a little bit of the reflex relief on this report, in-line, top-line, and things seem like there's no big air pockets in terms of results versus expectations heading into it. I think part of the setup here was, you know, and there was some information out there about some of the sell-side saying There's no big air pockets in terms of results versus expectations heading into it. I think part of the setup here was, you know, and there was some information out there about some of the sell side saying that people had really backed away from Alphabet, much preferring Meta in this area, and in fact, Alphabet trading at a discount to Meta. So it's hard to know without getting the guidance if we can really change the story on a going forward basis.

But right now, I get why we have at least a little bit of a pop here to above 100. Okay. Sahak, I want to get your reaction to the numbers you got from Alphabet, especially since I know you turned a little bit more bullish on tech overall late last year. And I'd imagine that's been a pretty good call so far. Yeah, it's been a decent call so far. But to Mike's point right now, he just spoke about meta. And one thing that meta has done that Alphabet has not done, and maybe we'll hear about from Alphabet tonight, is Meta last November came out and announced slashing of jobs. So their cost-cutting initiatives have been very strong, and they've been very outspoken.

And I think the poster child for tech in terms of cutting costs, Alphabet very late to the game. We'll see what they say. We'll see what they say. We'll see if they do. But I think they have to start introducing some job cuts. And that should only help margins. It's good to see YouTube better. But it's, again, advertisement revenues. That's the story here for Alphabet.

It's been in a big consolidation zone coming into it. The setup into it was, I think, a yawn or a snooze for investors. And it's good to see the number come out better and good to see the stock up 4% or so in after hours. A $70 billion buyback authorization I'm hearing when it comes to, yeah, stock repurchase in Alphabet. Let's see, we have Microsoft. We do. Microsoft earnings are out. Steve Kovac, what are the numbers look like? Yeah, John, they're pretty good. Beat on the top and bottom line.

You see shares were up as much as 5 percent earlier here now, about four and a half percent. EPS coming in at two dollars, 45 cents versus the 223 adjusted the street was looking for. Revenue also a decent beat here, $52.86 billion versus a little over $51 billion the street was looking for. And Azure growth right in line with expectations growing 27% versus the 27 and change the street was looking for. But John, we're seeing a huge deceleration in Azure cloud growth, just quarter over quarter now. That's what we got for now. Mike Santoli, interesting here. Office commercial up 13 percent, 17 percent constant currency, but perhaps a bit more notable, office consumer up 1 percent, 4 percent constant currency.

Consumer was down last quarter and more personal computing, of course, Windows and devices down less than they were last quarter, more in the high 20 to 30 percent range down versus the close to 40 percent down that we saw last quarter. Right. So you just lined up those things that folks were, I think, a little bit clenched up about in terms of potential hazards to the downside did not get met. You know, I do think the cloud revenue growth level is definitely a relief. There were some people thinking it was going to be more pronounced. I think now the debate goes to where does that settle out later in the year? There's some estimates that it gets down below 25 percent year over year. So we'll see how that goes. What I also find interesting, though, is the very first line of the CEO comment for Satya Nadella. The next major

wave of computing is being born as the Microsoft cloud turns the world's most advanced AI models into a new computing platform. So this is not playing defense. It's reassuring that the results were good, whereas I think for Alphabet, they were much more emphasizing resilience and search against this new perceived threat. Yeah, that's exactly where I was going to go with you, Sahak. The fact that the first commentary, the leading commentary out of this release is focused on AI, which isn't necessarily even folded into the results that we're seeing here in a meaningful way yet. Yeah, so that's been the price appreciation that we've seen over the last couple of weeks,

a couple of months or so has been because of AI. It'll be very interesting to see what they say on the call tonight in terms of AI. But again, going forward, it'll be monetizing AI. And one would probably bet that if anyone's going to figure out how to monetize AI, Microsoft will be there to do it. So Nadella and company in a good place, I think, with the Azure growth plus 27%, a little bit less. But I think given the fact that they've got so many other things going for them right now, and again, we'll see what comes in the earnings call later with any guidance they give. But AI, a huge boost for the stock over the last couple of months.

And the fact that they're playing offense. We've got Visa earnings out as well. Want to get to those? Christina Partsenevelis has those numbers. Christina. Yeah, Visa posting a beat on the top and bottom line, adjusted EPS of $2.09. That's 10 cents higher than what the street was anticipating on revenue of $7.99 billion, so pretty much $8 billion.

That's an 11% increase compared to last year. That was driven primarily by payments volume, which was up 10%, especially cross-border volumes, a factor that helped the payments processor back in Q4. The company's CEO acknowledging the macroeconomic uncertainty in this press release, but is confident in Visa's ability to manage changing environments. There is no guidance thus far, but we know the stock for Visa is up almost 11%, 10.5 percent year-to-date, beating MasterCard, which is only up 6 percent. And shares are a little bit higher right now. Guys? Yeah, up about 2 percent right now in after-hours trade. Christina Partsenevelis, thank you.

Chipotle earnings are out, too, and Kate Rogers has those numbers. Hi, Kate. Hey, Morgan. Big quarter for Chipotle beating across the board. EPS coming in at $10.50 versus estimates of $8.92. Revenues also a beat, $2.37 billion for the quarter compared to estimates of $2.34 billion. Comps up 10.9%. That's a beat versus the projected increase of 8.6%. Also better than the high single digits that the company had guided for. margin at 25.6 percent slightly slightly

rather better than the 24.4 percent street account had projected up from last year thanks to sales leverage and lower costs on avocados and delivery the company did mention it's still having food and labor inflation impact its margins food beverage and packaging costs at 29.2 percent of total revenue food costs benefiting from menu prices taken in the prior year as well. In-restaurant sales up 22.9% year-on-year. Digital sales at 39.3% of total revenue. Guiding here for Q2 and full-year comps in the mid to high single digits, 255 to 285 new restaurants, including 10 to 15 with a Chipotle.

As you can see, the market likes it here. The stock up over 3.5%. And CEO Brian Nickell is coming up next for much more on the quarter, guys. Back over to you. Looking forward to that. Imminently. Yes. Sahak, back to you on this one.

This overall sounds better than some might have feared, even this morning after hearing what UPS had to say. Visa still seems strong on the consumer. Apparently people are swiping those cards and buying burritos because Chipotle is doing okay. And then we had Microsoft and Alphabet both doing better than some might have feared in the areas where they were weaker last quarter. Yeah, John, that was going back to the first thing I think I said to Morgan this afternoon here. And coming into this today, I was somewhat reticent as the market was getting hit pretty hard. And I've got this bullish undertone to my comments and to how I feel about the markets.

I think we're seeing mega caps, larger companies still come out and deliver some pretty decent results. Visa, I mean, this company is trading at near 52-week level highs. And maybe expectations were somewhat tempered after American Express a week or so ago. But again, it's good to see that up 2%, very strong numbers. And again, all about total volume for Visa, pardon me. And so that's higher. Chipotle is trading higher. And I think just the technical backdrop for stocks here has drifted dramatically since mid-March. And I think that as we've breached this long term bearish downtrend, it's hard to stay too bearish on stocks. And Q1 prints are starting to help prove this, I think, fundamentally anyways. Yeah. I mean, just to go back to Visa here, when you have volumes that are up 10 percent and it's cross border volume that is driving that.

We know that tends to be a much more lucrative business for Visa. I mean, is a Visa or a MasterCard even to a certain extent an Amex? I mean, these are more like recession proof type names because especially in a high inflation environment, people are just going to use their cards more and sort of it almost doesn't matter what's going on. Folks are going to swipe. They're going to see business from that. Yeah, total payment volumes up 10 percent. And I think which was maybe around 11 percent or right in there. I think it just speaks to consumer strength and that the consumer is still there and

still able to spend money. Okay. And we see labor markets, very tight labor markets still. All right. Sahak, thank you. Mike Santoli, we'll see you in a bit. And now Microsoft shares on the move, as we mentioned, in overtime after reporting Q3 numbers, fiscal Q3 moments ago. Joining us now for more is DA Davidson's Gil Luria. Gil, in particular, Azure here, Microsoft Office kind of performing strongly, but the consumer business may be a bit stronger than some might have feared, right, given what we saw last quarter. That's right. One of the really notable items in the earnings report is that both the device and the Windows OEM lines are declining less than they did last quarter, meaning we may have found the bottom on those

businesses. And let's not forget, at least the Windows business is a very high margin business. So it's very good news for Microsoft that they've them there and that the rest of the way for this year looks to be even better. Who else is it good news for, though? And I'm going to get you a little bit out of your area here, but I think for investors, the read through is important. We've got Intel later this week. AMD is out there. There are so many different players within the ecosystem that involves consumers and PCs that have been telling the story about strength in the second half, but perhaps investors haven't believed them. Is this a little bit more of a reason to believe it? It could be, and let's not forget that little company in Cupertino that sells these types of

devices as well. This could be a little bit of a good sign for that whole consumer electronics ecosystem. But another thing that really stands out in this Microsoft report is 13% growth in its search business. That is a significant acceleration from last quarter. And guess why that's happening? Incorporating chat into Bing is clearly something that's driving growth in that business in an environment that digital advertising is not growing. So the fact that Microsoft is accelerating there is also very notable. All right. So so key things you want to hear from the conference call and just as importantly, with the stock popping four percent right now on these results after hours, do you buy in here? Yes, we do, because I'd say since they beat on almost every revenue line in this report, it's indicating something very important, which is enterprises are consolidating their spend around Microsoft.

Just this quarter, we stopped using Zoom and Slack and moved to Teams. We're seeing that happen broadly. Enterprises are consolidating around the big tech providers, and Microsoft is right in the middle of that. So in terms of what we're looking for, Azure is obviously always key. They just beat the expectations by a hair. Guidance for the rest of the year is critical and we'll especially be listening to hear if they say that the volumes from generative AI are driving share gains in Azure. If that's the case, that's another leg up for Microsoft because if they gain share in that hyperscaler business from Amazon and Google, that is very significant for their competitive position. All right, Gil, thank you. Microsoft on the offense when it comes to search,

which takes me back to your incredible interview with Satya Nadella just a short while ago. Well, thank you. And we've been talking about this in AI, where the different buckets of business impact might be. One of them is in infrastructure. And if you're Microsoft, that means Azure. They go to OpenAI, they say, look, OpenAI is being built on top of Azure. So when you use that, not only does that go into Azure, but hey, if you're a developer, you should build your AI app on top of Azure

because look, Sam Altman is, it's a pretty strong case, right? So how much of that are they prepared to say is momentum at this stage? Are they going to say it's too early? That's going to be important. Meanwhile, PacWest earnings are out. Pippa Stevens, what does it look like? Hey, John, well, that stock is jumping double digits now after its latest report. The company did beat bottom line estimates with EPS coming in at 66 cents on an adjusted basis. That was five05 ahead of expectations. Now, total deposits were down 16.9% to $28.2 billion at the end of Q1.

That is relative to Q4. And, of course, that metric has become really, really important here. Now, PacWest did say that that is better than their latest update on March 20th, at which point the deposits were $27.1 billion. So by the end of March, that number the deposits were $27.1 billion. So by the end of March, that number had grown to $28.2 billion. And again, those shares are up 12 percent now. Guys? All right. Definitely casting a very opposite picture to what we saw from First Republic. Pippa Stevens, thank you. Chipotle shares sizzling after beating estimates,

revenue climbing 17 percent. Joining us now in a first on CNBC interview, Chipotle CEO Brian Nickell and our own Kate Rogers. Kate, take it away. Morgan, thanks so much. And Brian, thanks for being here. Great to see you. Yeah, great to be with you guys. So last quarter, the company said you weren't seeing much resistance to higher prices. Is this still the case for you right now and how are you assessing price hikes moving ahead yeah look as i've said before we're very fortunate chipotle is a strong brand with unbelievable pricing power we use it very um sparingly you know we don't like to take price unless we absolutely need to we had to take that based on some of the inflationary environment we're dealing with.

And fortunately, what you can see is in our Q1 results, we had great traffic results. We had great operational performance. And then we also opened a lot of new restaurants. So all things actually delivered for us in the first quarter. And we're really proud of what the team has accomplished. And Brian, right now, are you feeling any pullback at all from the lower end consumer as we're hearing so much talk of trade down to lower cost places like McDonald's, for example, that just reported this morning? Are you seeing any of that going on? You know, we saw the lower income consumer. So households earning less than $70,000 slow down probably about a year ago now. And fortunately, we've seen a little bit of an uptick in that consumer with us, still below where we were about a year ago with that consumer. And then we continue to see a lot of strength in the higher income groups. So those earning more than

$70,000 of income continue to come to Chipotle with greater frequency. Brian, it's Morgan. Given the fact that you did see a flurry of price increases over the past 15 months or so, just looking at your restaurant operating margin, the fact that that jumped nearly five percentage points year on year, are you done with price hikes? You know, look, we'd love to. Our plan is to pause on pricing. You know, we have always said we're going to keep an eye on what happens with inflation, both labor inflation and food cost inflation. And, you know, we'd like to trail that a little bit rather than get in front of it. So fortunately, what we're seeing right now is kind of mid single digit labor inflation and mid to high single digit kind of food inflation.

So we feel pretty good about where we are right now. We don't have any plans to take pricing. But, you know, if we see that move, fortunately, we've got a really strong brand with a lot of pricing power that if we have to make a move, we will. And that's kind of the approach we've taken. And that's the approach we'll continue to take. Brian, thanks for being with us. It's John Fort. So I think digital is in the high 30s as a percentage of your sales between 37, 39 percent. How is that trending as we get into a post-pandemic stance and how does that affect the pace of your expansion and the kinds of resources that you need to put in place to expand? Yeah, look, we've been investing heavily into the digital access channel for ourselves. Obviously, COVID accelerated that move and that behavior with our customers in a big way.

We were fortunate that we had established that business before COVID hit. It's been about that 37 to 40 percent really for the last, let's call it, you know, 18 months. And we feel really good about that as a percentage of the business. It's allowed us to create another access point called Chipotle which when you look at the restaurants that we're building about 80 percent of them will have that drive-through pickup window and you know the good news is our returns on our new units continue to be best in the industry and you know we're going to continue to push towards that 8 to 10 percent new unit growth while we continue to drive, I think, great

execution within the current four walls of our existing restaurants. I think that's what sets Chipotle up as really a unique company. You know, we've got growth in the restaurant, we've got growth with new units, and then we've got a really vibrant digital ecosystem. So how does that, I guess, to tug on that thread a little bit, I mean, how does that speak to the focus on improving store operations as well? How much investment is all of this taking? Yeah, look, nothing goes really smoothly if we don't have great in-restaurant operations. And we've had an initiative called Project Square One that we put back in place probably about now nine months ago. And I got to tell you, our operators are delivering in a big way.

You know, we're staffed better than we have been. We're deploying better than we have been. Our turnover is the lowest it's probably been in about five years. So we've got greater stability. Our training is getting back to the basics of shoulder to shoulder training. So as a result, the culinary, I think is stronger.

We've got all the ingredients on the menu. Our digital make lines are open when they're supposed to be open. They're staying open until close. And the same thing goes for that in-restaurant experience where you move down the line with us. So we're investing in that, our people and exceptional food. And we know when we do those two things really well, we get great results. And Brian, just finally to follow up on the people investment, what are you seeing right now on the labor front and has the hiring situation improved at all for Chipotle? As we know, so many restaurants are still struggling right now with that. Yeah, you know, we've been really fortunate. We've always had great applicant flow. It was the

turnover that was really high for us there for a while. That has finally normalized and we're seeing much more stability in the restaurants. We also most recently added a new incentive for our team members around digital tipping, which we've gotten great feedback both from customers and our employees. And we're seeing more and more stability and we're seeing great execution against our Chipotle standards. So we're really happy with our results. Couldn't be prouder of the team. You know, it's great to see earnings growing, margins growing, new units being built. It's a great place to be right now. I'm pretty fortunate to be a part of it. All right. Well, we appreciate you coming on and sharing the details post earnings. Brian Nickel and our own Kate Rogers with shares of Chipotle jumping about 5% right now in the after hours trade. Thank you. And we've got much more after-hours action ahead.

Coming up, we're going to talk to an analyst about Alphabet's quarter and the big buyback news. Over time, we'll be right back. Welcome back. Well, we have had a busy afternoon of earnings so far. Alphabet, Google coming in with stronger results on YouTube than some feared. That is up better than 3%. Microsoft, strong in the cloud. That's up about 4.5%. Chipotle, opening stores, moving a lot of burritos, up more than 5%. And Visa, payment volume up 10% as well. PacWest, higher. And we got one more, Texas Instruments. The chipmaker, analog chipmaker, results are out.

Christina Partsenevelis, how does it look? Well, what we're seeing is that they posted revenue of $4.38 billion, which pretty much fell in line with estimates. But that's an 11% drop year over year. EPS came in at $1.85 adjusted. So that was a slight beat. But you're seeing the stock down a quarter of a percent right now because of its Q2 revenue guidance that came in a range of $4.1 billion to $4.5 billion. So that midpoint was slightly below estimates. Q2 EPS also a touch conservative, just showing that the company is dealing with a slowing analog chip demand. actual earnings report, Texas Instruments CEO saying they are seeing weakness across all end

markets with the exception of auto. So that's the one bright spot we've seen for many other chip makers when you consider the prolonged correction in other segments like PC, smartphones, data centers and industrials. So I think the stock is reacting more so now just to that guidance number. Well, maybe they can hope, their investors can hope that the PC market has bottomed with these Microsoft results, but we'll see what they have to say on the call. And with Intel on Thursday, right? Exactly, exactly. Auto, though, it's been resilient.

We've seen a lot of the manufacturers and industrial component makers and suppliers, too. It has, exactly. And GM this morning. Industrial as well, just like you said. And we are just about 30 minutes away now from the earnings call for Alphabet. Up next, we're going to ask an analyst what he wants to hear from management. And check out UPS as we head to break. Falling sharply today, finishing the day down 10% after earnings and revenue missed the mark,

with revenue guidance coming in soft as well. That move weighing heavily on the Dow Transports. Dow Transports finished the day down 3.6 percent. We'll be right back. Welcome back to Overtime. We are getting more details on Alphabet's earnings. Let's bring in Deirdre Bosa, joins us on set. Hi.

Hey, guys. So I just got off the phone with Ruth Porat, the CFO of Alphabet. And, of course, what a lot of investors were looking for this quarter is more evidence of cost cutting, right? There's this notion that Meta, even Microsoft, some of the others have been doing more cost cutting than Google has. So I asked Porat if there was more wood to chop. And she said, you know, they are committed to having revenue grow faster than their loss

or the profitability. They want their margin to expand. But she said that they're looking for efficient, durable ways to do so. So she had a little pitch for AI and automation. They said they're using AI and automation to get that durable efficiency for the longer term. In terms of cloud, I know we're very focused on that because it's the first profitable quarter for cloud since they've been breaking it out. You know, she talks about this a lot, typically every quarter.

And she says that, you know, they just haven't slowed down their investment. So they continue to do that. And they've seen growth across the industry and products. In terms of YouTube, she says that they're seeing some stabilization there and in the broader macro picture. But there could be more to go in terms of companies trying to get their marketing spent in line and become more efficient themselves. I was just looking at that, what we had on the screen and sort of the excitement about the public sector. And we've been, we've touched on it a little bit in the last couple of days, but just the fact that you have had government spending ramp up as you see this attempt to bring more digitization into the public sector. So they see an opportunity there.

Absolutely. And I think all the cloud companies would say that, as you know, well, Morgan, a lot of the public space is trying to get this in order. And DOD has a big contract. Exactly. And these are sort of fiercely sought after contracts and the hyperscalers and even some below the hyperscaler level are looking at these contracts. So, you know, a lot of these companies, Google especially, would argue that we're still early and there's a lot more incoming, not just on the infrastructure side, but a layer down on the services as well. Yeah. Dee, thanks. We know cybersecurity companies are waving their hands saying, we know you need us, government as well. A great insight from Porat. For more on Alphabet, now let's bring in Barton Crockett, Senior Research Analyst at Rosenblatt Securities. Barton, how much of the excitement for investors here should be

about potential cost cuts versus the top line in certain areas not suffering as much as they might have feared? Look, I think that Google or Alphabet's positioning right now is one where you're really looking for the revenues to accelerate, to improve from here. You know, they're paying attention to costs, but they're not pushing it as aggressively from the kind of discussion that we're hearing from Georgia and from the company, I think, before. They're not pushing it as aggressively as Meta. So we really need to see, you know, the macro stabilize for people to feel comfortable that the ad-driven top line can improve.

The other thing is just the thematic of, you know, artificial intelligence, chat, search. Not a lot they can say right now. I think time will tell. But everything they can say that talks about confidence, talks about how they can say right now. I think time will tell. But everything they can say that talks about confidence, talks about how they can manage it, talks about their ability to withstand the innovation wave and get in front of it, I think is going to be helpful for this equity. OK, Barton, if you want to see top line growth from Alphabet, you're an investor, they're not going to be able to do big M&A probably, right? Because the regulators don't like that these days. What's going to move the needle for them? I mean, in cloud,

they've got some growth going and they made it profitable. It looks like maybe by taking some costs and moving them to another division, that's a quicker way to get there. But where do you get that top line growth when you're already this big and the economy is slowing? Look, you know, there is a secular kind of migration of ad dollars from television to online video. They're well exposed through YouTube. And I think the search has also been a share gainer in advertising. With the economy strengthening, we should see, you know, those trends, you know, more prominent if the economy strengthens. And that's important for Google here near term. And then there's cloud. I mean, the cloud business, they're not the leader. They're kind of a share gainer. They should have an opportunity to outgrow the leaders.

And I don't know that they're doing that in this quarter, but they're certainly putting up some good top line there. And we'd like to see that continue. Okay. So what's the read through to Meta after the bell tomorrow and Amazon after the bell on Thursday, if there is one from what we know about Alphabet so far? Well, look, I think that, you know, from what I see with Alphabet and what I heard about Microsoft, it doesn't sound like the cloud computing businesses, AWS, that the industry is really falling off a cliff. It looks steady as opposed to terrible. So that takes away a little bit of fear around Amazon. You know, in terms of the ad market, we want to listen on the call and hear anything they have to say about what's happening right now. Are things getting better? Are they

getting worse? We're at a real kind of, you know, sitting on the head of a pin, of a needle pin, in terms of the macro and the ad market, which way does it kind of fall? You know, if we're not going into a recession, I think all of these ad-driven stocks are going to benefit. Okay. Barton Crockett, thanks for joining us. Great. Thank you. We've got another earnings mover to tell you about. Enphase Energy, sinking on earnings. Pippa Stevens has the details. Hi, Pippa. Hey, Morgan. That stock down 15% now after a mixed quarter from the solar company. EPS coming in at $1.37 on an adjusted basis. That was ahead of expectations for $1.21.

But revenue did miss. Estimates coming in at $726 million for the period, short of the $732.5 million that analysts were looking for. In the U.S. specifically, revenue was down 9%. But it really does seem to be the guidance here that is sending those shares lower. They see revenue for the second quarter between $700 and $750 million. That is well short of the $773 million that the street was looking for. Those shares now down 15%. Morgan?

All right, a big move after hours. Pippa Stevens, thank you. That was a good question for Barton on the read-through to Amazon and Meta, by the way. Both of those stocks are up 2% right now on some pretty decent volume, you know, in sympathy there. We're going to have a busy rest of the week here. Yeah, that's how we like it. In the meantime, though, Visa shares, those are popping after beating earnings estimates. Up next, Mike Santoli takes a look at the results and the recent rally in payment stocks.

Stay with us. Welcome back to Overtime. Let's get another check on Visa from Mike Santoli. Taking a look at the payment stocks on the back of those earnings. Mike? Yeah, John, pretty good immediate response for Visa. And in general, the payment stocks have performed well, not just in the near term, but really over the last dozen years, been one of the favorite areas of growth investors, because it's really not about credit or even macro. It's about large addressable markets,

global kind of network effects. And here you see MasterCard, Visa, along with Pfizer. That's another card processing company, serves mostly the financial services industry relative to the financial sector and then the banks index. Now, the reason this is relevant in the recent past is these payment stocks all were shifted from the technology sector by S&P into the S&P financial sector. And that happened right about here. OK. And so you see here is that the payment stocks have managed to outperform their sector, as I think part of it is people who need a financial allocation for a diversified investor, you'd prefer to take shelter in some of these nice growth names that you don't have to worry about. Bank struggles and raising capital. You see what's happened on a relative basis to the overall financial sector, as well as banks.

Now, when it comes to valuations, you can take a look at Visa and MasterCard, what it most looks like. How about something like Microsoft? Just a firm kind of mega cap growth multiple here in the mid-20s. And you see MasterCard got as high as above 40 not that long ago. So they're treated more as technology names. For comparison's sake, the financial sector trades around 13 times earnings. The bank stocks trade below eight times forward earnings right now. So you can see right there as people are massaging their definition of a financial. But however you cut it, the payment stocks are always seen as these secular winners, even if they have some hiccups on a cyclical basis. Yeah, this is just such a smart take, Santoli.

But I also what gets my attention is how much Visa and MasterCard trade similarly to each other. I mean, they're almost like mirror images in terms of those stock charts. Absolutely. I mean, they're feeding off the exact same dynamics, the electronification of payments. There are some geographic differences. Right. So MasterCard and Visa have some different mix in terms of what parts of the world are driving the earnings. But you're absolutely right. They're considered to more or less be these big high profit payment utilities, pretty interchangeable, so to speak. And they haven't been eaten alive by the fintechs. One might argue they are fintechs, Mike. Exactly, yes. Thank you. And we're going to have a lot more on the payment space next when we're joined

exclusively by the CEO of Buy Now, Pay Later and e-commerce company Klarna. We'll be right back. Welcome back to Overtime. Visa's earnings giving us clues on the strength of the consumer. The company's seeing a 10% bump in payments volume and constant currency terms. And speaking of the consumer, Klarna announced today it is redesigning its app to feature an AI-powered shopping feed and a new personal shopper service called Ask Klarna announced today it is redesigning its app to feature an AI-powered shopping feed and a new personal shopper service called Ask Klarna. Joining us now is Klarna CEO Sebastian Semyatkovsky. Sebastian, thanks for being with us again.

It's great to have you back on the show. I do want to start with the read-through from Visa because I do know that you compete with companies like this. So the fact that we did see this increase, this double-digit increase in payment volumes, what are you seeing in terms of the consumer? And is this a situation where they're continuing to gobble up market share, or is it not a zero-sum game? Well, look, in my opinion, if I look at something like Visa, right, it's in the short term, obviously, still benefiting from two things, I think. Still, we're seeing, you know, on a year-on-year comparison, we're still seeing some, like, effects of, like, people coming back from what used to be COVID restrictions and into more normal circumstances. And that's still

giving, you know, a good positive push here on people spending more in stores in stores and kind of physical presence right rather than online so that's obviously part of it i also think that there's still obviously that underlying digitalization trend that is is mentioned i think however one should be very mindful i mean the biggest barriers of entry to compete as a network versus visa mastercard has been that the terminals in the stores are super dumb, meaning that rolling out a new network today, the barriers of entry are almost, you know, they're almost impossible, right? But those terminals are getting super smart by Adyen, by Stripe, by their payments per price. Launching a new network in the coming years will be significantly less expensive. And we have to remember, we're looking at an industry that charges society 440 billion dollars in cost for basically

shifting money between accounts which isn't that much more difficult than sending emails and the cost of payments in the us is 10x what it is in europe due to the lack of proper interchange regulation in the us so these are in the longer term in my opinion both opportunities for a company like myself but also very risky um you know outlooks if you are a long-term investor in these companies. Sebastian, are you needing to pivot away a bit? I'm not saying you're abandoning it, but away from buy now, pay later, toward being more of a trusted payment company and payment gateway with the data you have on customer purchases and perhaps with retailers, with merchants needing that granular data on how to connect

the right buyer with the right item? Yes, very much. I mean, it's already almost half of our volume is debit rather than just credit. So we are already, you know, doing a lot of like pay now, so to speak. But in addition to that, you know, if I look at like the long term, where are financial services heading? In my opinion, one day you wake up in the morning and your digital financial assistant will tell you, hey, I've analyzed your purchase history. I realized I could save you $20 by say, you know, changing mortgages,

changing electricity provider, whatever it might be. The only thing you need to do is to say yes, right? I used to think that's far in the future. Now, as I'm seeing what's happening with opening our chat GDP, the things we're experimenting, this is coming very close. The future of financial services is not to maximize interest rate spread, which has been what the banks have been doing, which basically means pay as little as possible to depositors and charge as high interest rate as possible. Those days are soon gone. And the true purpose of a financial services technology is going to be to help people save time, save money,

make them less worried about their finances. And that's all about who is trusted with the data and who is the best at taking the data of the consumer and turning it into very profitable, actionable, and actually taking actions on behalf of consumers to help them in shopping-related decisions, in purchases, and all these things. So it's a very exciting future in that area. Yeah. And certainly, I mean, you're raising key points that are very much in focus where the business model, the traditional business model of banks is concerned too, given all the turmoil we've seen within the sector here in the U.S. in recent weeks. The TikTok-like discovery feed that you are implementing

and you are announcing today, you just kind of touched on it, but specifically, why are you doing this? How are you doing this? And what does this mean in terms of future business growth and opportunities? So it comes back to our, actually to the question about Visa and our,

you know, the difference with Klana. So Klana has half a million merchants connected today. And the difference on our network today, as opposed to Visa Mastercard, is when you make a purchase with Klarna, so Klarna has half a million merchants connected today. And the difference on our network today, as opposed to Visa and Mastercard, is when you make a purchase with Klarna, merchants and consumers share with us not only the amount that you're shopping for, so I bought for $50 at Macy's, but the actual full digital receipt, the full SKU level details. What did I buy? What color? What size? What item? Et cetera. And this has allowed us to now utilize that data to provide richer services, to provide recommendations based on your purchase experience. What could be interesting items for you to purchase?

And we've seen already in China that what used to be a search-led commerce was 80%, 90%. Recommendation was maybe 10%. Today, it is the opposite. In China, 80 percent of purchases on the big T-malls, Alibabas, et cetera, is recommendation based. You're opening up and you're already getting great offers and suggestions that make sense to you. We have a unique opportunity there to help our retailers grow because of the data consumers have decided to share with us. Yeah, potentially Amazon e-commerce level data granularity, but not

in just one company. We'll see if you can make it work. Sebastian, thank you. Good to see you. Thank you for having me. Up next, a look at all the after hours earnings actions and the big names that are set to report results on overtime tomorrow. And tomorrow, don't miss an exclusive interview with Norfolk Southern CEO Alan Shaw on the company's earnings, the latest details after its train derailment in East Palestine, Ohio during the quarter. Stay with us. Let's get another check on today's overtime movers. Microsoft beating analyst estimates and revenue and earnings. Azure cloud revenue growth, a slight miss, but you can see those shares are higher.

Alphabet also moving higher. Revenue with a slight beat and earnings per share beat as well. Alphabet also announcing a $70 billion buyback. Those shares are up about 4% right now. Visa also higher, again, on a beat on both lines. Payment volume up 7% year over year. You can see those shares are up 2%. Also, a name that's not an earnings mover but has news, Carrier. News just crossing that that

company will acquire Wiesman Climate Solutions in a deal valued at 12 billion euros, which it calls, quote, an iconic premium brand in the highest growth segment of the global heat pump and energy transition markets. When you talk about Carrier, you're talking about infrastructure, real estate, and you are talking about this energy transition push that When you talk about carrier, you're talking about infrastructure, real estate, and you are talking about this energy transition push that we're seeing. Carrier CEO will be on Squawk on the Street tomorrow at 9.45 a.m. Eastern to talk about that deal. Also coming tomorrow, a lot more earnings action. In the morning, we're going to get Boeing, Boston Scientific, Norfolk Southern,

Thermo Fisher, and after the bell, we will get numbers from Meta. That's a big one. eBay, ServiceNow, and United Rentals. But then today is an important day, not just because of the big earnings. It's somebody's birthday. Oh, boy. Oh, and look. Look at what we got here.

It's a rocket with a cake under it. Oh, my God, it really is a cake. It's a rocket with a cake under it. Oh, my God, it really is a cake. It's a rocket with a cake under it because it's your birthday. Happy birthday, Morgan. Oh, my God. Thank you. Thank you. From the whole team, yeah.

I am to the moon looking at this cake. This is amazing. And that one's not going to blow up. Oh, boy. It's not, yeah. It's been tested already. It's ready to eat. So you don't have to worry about it. Well, we are going to hack into it and, it's not, yeah, it's, it's been tested already. It's ready to eat. So you don't have to worry about it. Well, we are going to hack into it and give it a try. Be sure once again to

join us tomorrow. We got the read-throughs, right? Perhaps to eBay, though it's been struggling. It's a little smaller, but Meta, there's some encouraging signs that and Amazon were both up 2% after hours in sympathy with Microsoft and with Alphabet. Yeah. So we've got a very big week ahead of us still. A lot of earnings movers. Nonetheless, the market did finish today markedly lower. We had the worst day for the S&P in just over a month. That's going to do it for us here at Overtime. Thank you again for this lovely cake, show team. Happy birthday once again. And Fast Money starts now.