Closing Bell - Closing Bell Overtime: Cloudflare CEO Matthew Prince On This Week’s Social Media Outages; Palantir CTO On Key US Army Win 3/6/24

Episode Date: March 6, 2024

Stocks bounced back today with the major averages closing higher. BD8 Capital’s Barbara Doran and Citi Research’s Dirk Willer break down the market action. Palantir had its best day in a month after a key US Army contract win; CTO Shyam Sankar what it means for the company and what’s next. Cloudflare CEO Matthew Prince on this week’s major social media outages and its latest deal news. Former Fed Governor Randall Kroszner on Fed Chair Jay Powell’s testimony today and the latest Beige Book data. Hashicorp CEO Dave McJannet talks the latest strong quarter and its buyback plan.

Well, the major averages did it. Snapped a two-day losing streak. The S&P above 5,100 looks like. Even little Russell did just great. Closing well off the highs of the session, though. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, tech and utilities, the best performing sectors today. Consumer discretionary, the biggest loser for the S&P. Palantir, a big winner, though, after becoming the first software company ever to become a prime contractor of a hardware-based weapons system.

The company's chief technology officer joins us exclusively for an interview on this Army contract and all the potential for more deals like this. What a wild day of trading for New York Community Bank Corp. Stock initially plunged more than 40 percent early in the session on reports that it was trying to raise capital, and then shares rallied back after announcing it reached a deal for a billion dollar cash infusion from several investment firms. But now, enough about that. Let's go broad. Let's get to today's market action with our panel. Joining us now is Barbara Duran of BD8 Capital and Dirk Willer of Citi Research. Guys, welcome. Dirk, you say we're actually in a bubble right now, but it's still inflating.

Sounds like perhaps you agree with Chair Powell that now's not the time to cut rates. Yeah, very good point. I mean, the bubble gets thrown around very easily, right? So we have a fairly strict definition. If it's something going up more than two standard deviations across long term trend, in real terms, we call it a bubble. But you know what? When you enter bubble territory, you're meant to buy the bubble. You're not meant to sell the bubble because it keeps inflating. And we entered that territory middle of last year. And typically, these things can last one to be in two years so yes I think the the bubble is still relatively early and and there is of course a big question mark whether the Fed really should cut into an inflating

bubble even though we do think they will hmm okay Barbara at the more micro level I believe you like consumer discretionary on pullbacks. But given Foot Locker and Brown Foreman both had bad holiday quarters, Campbell Soup said fiscal 24 sales are tracking near the low end of forecast. And FICO, I think, announced that credit scores dipped for the first time in a decade. How do you invest despite those those rocks in the water? Yeah, well, in the consumer discretionary, for me, there's very specific names, you know, that are, to me, rock solid. And we've talked about it before. It's the Costco's, it's Walmart, names like that, that really have such great business models that they can really withstand a lot of economic turmoil. And certainly both of them have great

expansion plans. The Walmart side, they are really doing the omni channel very well and have so many new initiatives they are gaining share and they are the biggest um biggest company in the world in terms of sales and then costco you know they have lots of room to grow they've just they have a new cfo and it's going to be interesting to see the initiatives they take as they have a lot of room in terms of their e-commerce and other initiatives that they haven't yet moved into not not to mention new stores abroad and here. So that is where the areas that I am looking. Or, you know, a MasterCard, if you want to consider that a consumer discretionary name. You know, that or Visa. I mean, they're basically a duopoly in terms of dominating in that space. And we continue to see a move to electronic transactions away from paper.

Yeah. Dirk, with all the macro data we've been getting with the commentary from Powell on day one of testimony on the Hill, Beige Book, I mean, is good news good news for the market now, or is everyone just getting ahead of themselves? Well, absolutely. And that's a big change, right? Most of the second half last year, bad news was good news for the S&P.

And the reason was, of course, that people really wanted the Fed to get going and start cutting and so forth, or at least stop hiking at the time. And at this stage, though, we find the S&P reacts much better to good news. So good news is good news. And I think the reason is that investors basically understand the Fed will be going regardless. They will not be deterred by stronger growth data. Maybe they'll be deterred by really strong inflation data, but they will be not deterred by stronger growth data. And therefore, good news is good news, and the market likes it.

Okay. I want to get your thoughts on this, Barbara, too, especially as we do now set our sights on the jobs report later this week. And we did get some early indicators that maybe things are a little softer than anticipated ahead of that. Right. Well, I think we continue to see lots of good news in terms of employment and wage growth and savings. I mean, there's some estimates, for instance, in terms of a thirty eight trillion dollar wealth effect, you know, from the stock market action since 2019. But at the same time, you are seeing, even in the Beige Book, there are lots of positive things, but it's a lot of moderation, a little bit lower in labor, a little bit lower here. You saw the JOLTS numbers today, a little bit lower in the number of openings, a little bit lower in terms of hours worked. So you're starting to see a softening on the edges,

like credit cards. We are now at record high debt, but none of it is in the red alarm territory. But it's the moderating growth that also, I think, is hopeful for the Fed. I mean, they really, you know, that's what Powell reiterated today. He sees a soft landing still very much in its sights and that inflation, certainly rates have peaked. So unless you had some nasty surprise, which doesn't seem at all likely at this point. Barbara, we get Kroger, Costco and Broadcom earnings tomorrow. You already talked a bit about the consumer and Costco, for example. But what are you doing with some of these AI driven stocks? Not talking about NVIDIA, talking about Broadcom and some of the

semis. Can you still buy semis and AI-driven hardware at these heights? Yeah, no, because I own some Avago, not as much as I own NVIDIA. And it's always a question when any stock has had a big run-up. But again, it comes down to this bigger question about AI. And certainly, I think you heard the news from the NVIDIA at two different conferences this week that the potential use and the broad broadening of the customer base is huge. And that goes the same for, you know, for Broadcom. So I think, you know, that it's always a little unnerving when a stock has had monster run up, but the earnings and the sales are real and sustainable for a while. So I think when you

have any pullback like yesterday, you know, we haven't even had a 3% pullback in as Mike Santoli likes to point out for the last four months. So you will get these shallow pullbacks. And I think that's when if you have new cash, you can move into these names. And if you're uncomfortable with the high P.E., know that they usually grow into it. And you can also start a small position. OK, Barbara Duran and Dirk Willer, thanks for kicking off the hour with us with all the major averages finishing in the green today. The S&P up about half a percent. It's time to bring in senior markets commentator Mike Santoli, speaking of and his first dashboard. Mike, what you got? Yeah, I'm always willing to accept credit

for just a factual observation. Thanks to to Bob for that. But, you know, this is the six month path of the S&P 500. And it does show that incredibly consistent uptrend that we've seen. I wanted to show it to also highlight the fact that yesterday we had a one percent plus decline, one day drop in the S&P 500. That has basically happened once a month since December. And each time the following day rebounded. And before today, all of those rebound days were at least one percent. So today was the weakest recovery attempt of all of those. And you could point out a couple of these. So here's like the February 13th. And it took you back, created this sort of shelf on the chart. It's always just sort of a check back in these uptrends to where you were like a week or a few weeks ago. And that's also what we've

gotten right here. So we have flattened out a little bit. I think it makes sense, too. You've seen this four-month sprint, only two down weeks since October. You have to have a breather. We'll see if it is either here or if it's just a breather, if that's what we're getting. Bond's part of the story, too. Bond yields have stayed within this range since December, since the December Fed meeting, and really have kind of rolled over again. Some of the technical work on the yields are suggesting that this is

another little top here right around that 4.3 area that was put in. We'll see if that remains to be the case. But as long as we're in this familiar zone, it seems as if equities can deal with it. And we've been seizing on some just moderately softer than expected economic data over the last two days. Nothing really worrisome, but enough to suggest that the Treasury market is happy enough to bet that the Fed's next move is down and that disinflationary trends remain in place. I would also point out global yields have also been on the downswing, and that's probably adding to the pressure. Yeah, definitely. I don't think we talk about that enough. I wonder if it's time to trot out the word Teflon again when we're

talking about this market. I also wonder if we should be talking more about the estimated $6 trillion in cash sitting on the sidelines and what that's doing to help propel the stock's market higher. If it's doing anything right now, that pile of cash, it's just backstopping investor psychology, honestly, I think is all it is, because we're not seeing really across the board aggressive flows into stocks. And I'm not a big advocate of saying that cash on the sidelines, so to speak, is a really reasonable catalyst to expect as your reason to be bullish. Right.

So sometimes it's going to happen. But even in the 2010s, it was really only one year where you had a big rotation out of cash and bonds into stocks. The rest of the decade, you had uptrending markets. But it wasn't because people were constantly funneling an enormous amount of money into equity. People just got used to not selling very much, allowing equity exposures to go higher. You had corporate buybacks. So all that stuff can help as well. All right. Mike Santoli, thank you. And now we're getting some news out of Washington. Eamon Javers joins us with that. Eamon. Hey there, John. Attorney General Merrick Garland is getting set to announce right now in San

Francisco that a federal grand jury has indicted a Chinese national for theft of AI trade secrets from Google. A federal grand jury indicted Lin-Wei Ding, aka Leon Ding, and charged him with four counts of theft of trade secrets. The Department of Justice says Ding, 38, a resident of Newark, California, transferred sensitive Google trade secrets and other confidential information from Google's network to his personal account while secretly affiliating himself with PRC-based companies in China. Now, Ding was arrested earlier this morning in Newark, California. According to court documents, the technology Ding allegedly stole involves the building blocks of Google's advanced

supercomputing data centers. DOJ says Google hired Ding as a software engineer in 2019, and on May 21st, 2022, Ding allegedly began secretly uploading trade secrets that were stored in Google's network by copying the information into a personal Google Cloud account. Ding allegedly uploaded more than 500 unique files containing confidential information. Now, if convicted, Ding faces a maximum penalty of 10 years in prison and up to a $250,000 fine for each count. John, back over to you. Wow, yeah, bold to use a personal Google Cloud account to copy Google trade secrets if that ends up all panning out. Eamon Javers, thank you.

Meanwhile, some new developments surrounding New York Community Bank Corp. Leslie Picker joins us with those. Leslie. Hey, John. Yeah, I've been chatting with a few people about the backstory for how this deal for one billion dollar equity capital infusion came together. I think these details are important for the plight of the stock. And here's what we've heard. Former Treasury Secretary Steven Mnuchin has had has been involved here diligencing New York Community Bank Corp for a while now. I'm told this was not one of those come-together-quickly,

white-night-rescue financing situations. I'm told Jeffries approached a select group of other investors with the prospect of a capital raise on Sunday, and they were told that a lead investor, which ultimately turned out to be Mnuchin's firm, had put up $450 million. Ultimately, investors,

including Hudson Bay Capital, Reverence Capital Partners, and Citadel had decided to invest alongside him for that total infusion of a billion dollars. I also am told that putting former comptroller of the currency, Joseph Otting, in that CEO role and revamping the board was a huge boost of confidence for investors to put that capital in as well. The price per share of $2 was finalized intraday after the stock plummeted. It's a premium to the lows of today, but below any level that NYCB has ever closed since the late 90s. Still, the stock reacting positively because investors believe that the equity stabilizes the bank, whereas the stock

moves prior to this announcement were more akin of a likelihood of potential failure. So you can see their shares seven and a half percent higher ultimately after a whipsawing of the stock today, guys. Yeah, I mean, it was just an amazing move, to your point, in this name yet again. Leslie Picker, great information, great reporting as well. I just, a really quick question on this, though, and, you know, we've got to go.

Leslie Picker, thank you. Pounds here popping after beating out Raytheon for a big U.S. Army weapons system contract. Up next, Chief Technology Officer Shyam Sankar on the new defense industry

opportunities this deal opens up for the company. Plus, Fed Chair Jay Powell testifying the central bank is not yet ready to start cutting interest rates. Coming up, former Fed Governor Randall Kroszner gives us his take and when he thinks the cuts could begin. Overtime's back in two. Welcome back to Overtime. Palantir having its best day in a month on news that it will become prime contractor for the U.S. Army's Titan program to build an AI-enabled vehicle. Initial contract, $178 million for the first 10 prototypes.

This is a high-profile win for Palantir, which the military picked over an industry stalwart, RTX. March the first time a software company becomes prime contractor of a big hardware program. You can see shares end of the day up about 10%. Well, Palantir's chief technology officer, Shyam Sankar, joins us now exclusively to discuss. Shyam, it's great to have you back on the show. Welcome. Thanks, Morgan.

Great to be back with you. All right, so this is significant. It's meaningful for the company, as I just mentioned, this milestone of being a software company that is now prime contractor for a high-profile hardware program. What does this enable for Palantir, and how does it speak to the role that software, and particularly AI, is increasingly playing in military applications? We've been talking for a while about how software is eating the world. I think this is a

manifestation of just that here. We have a vehicle that you wouldn't traditionally associate with a software company, but we are delivering an AI-defined vehicle that's going to provide deep sensing to enable long-range precision fires. And really, this vehicle was built around the soldier to enable their workflows. And it's another manifestation of how AI is changing the face of warfare. So Bank of America today writes a note. They say we see the win as cementing Palantir as an AI prime in the world of defense and anticipate further penetration opportunities. I wonder what this means in terms of possible future competitions from a prime perspective, but also perhaps just as importantly, given the role your technology is playing and the fact that it is now being tested and sort of seen as a gold standard, at least based on my own reporting among many senior DOD officials, as a supplier, too?

Yeah, I think this is big for really two reasons. We talk about the F-35 as a flying computer. We talk about Tesla having disrupted automotive by building a software defined vehicle. It sets a very clear path where software is the most important weapon system. It is how we deliver outsized lethality on the battlefield. And it paves a way, and this is really the second point, where the broader defense tech ecosystem, we think about the capital that's been employed here, the amount of innovations and founders that are bringing new capabilities to bear. It really shows that the department is very serious about enabling new entrants to deliver entirely new capabilities to transform the battle space. Yeah. The defense

business, or I guess you could say the government business, is still the largest repellent here by revenue. But we know, looking at last quarter's earnings, that U.S. commercial business is just surging in terms of growth right now. Tomorrow, we've got AIP Con. This is your artificial intelligence platform con. And it says in a Palantir tweet that after nearly 850 boot camps that your customers are going to show some of what they've built with AIP. The last time you and I spoke on this show, you were talking about those boot camps and how aggressively potential customers have been utilizing them. What are you seeing now? What can you preview for us ahead of this event tomorrow? Yeah, we have over 200 customers here. I'm here in Palo Alto for

the conference. We're going to have some great keynotes that'll be live streamed, customers showing what they actually built in the boot camp, how they're using this capability. We'll preview some of the latest and greatest capabilities in the platform itself. But we couldn't be more excited. Everything is accelerating around this experiential experience. You come to this bootcamp, we're not talking about eight weeks, we're talking about eight hours where you're going to leave with a production-ready use case that can start transforming your business. And that duality of having been inspired about the art of what's possible with AI and having delivered a use case in eight hours, it's really fueling the growth. And you see that with the 70% growth in our U.S.

commercial business in Q4. Shyam, I'm not deep, clearly, in the defense business like Morgan is, so I want to understand more clearly what's different about this for Palantir. And when I look at who you're bringing along with you in this Titan deal, the likes of Anduril, L3, Harris, Northrop Grumman, is it sort of like when you're having your house renovated and you have a lead contractor who brings in subcontractors to get the full job done? Are you like the lead contractor here and it's the first time a software company is serving in that kind of role? Yes. And I would say more precisely, the entire vehicle and the capabilities of this vehicle are derived and designed around the software. And so we have a great team, the super friends here who have enabled us to translate the software vision into the actual hardware itself and the performance and integration with the space-based sensors, terrestrial sensors, the rest of really what comprises the kill chain to deliver those long-range precision fires.

And I would view this as one of the pillars of what the department calls joint all-domain command and control, JADC2, which is really the embodiment of using software to tie together your sensors and your shooters to deliver effects, to have information dominance on the battle space. Shyam, how much better do you think you can do this than other government contractors who, you know, at times have trouble meeting their deadlines? Look, we feel very good about the performance and the relationship we've built with the Army on this.

I think the important part is that this is a competition where there's only one winner. I don't mean the competition for the contract. I mean the context of war. And so the capabilities we hope to deliver, we we think will be decisive and tipping the scale here. So we've got some lawmakers right now, it would seem, voting on passing another continuing resolution. We're almost six months into fiscal 2024 from a government standpoint. We still don't have a budget appropriated. Because you are a defense contractor, Palantir is a defense contractor.

Is this a situation where if it continues to go on for long enough, it could be meaningful or impactful to that part of your business? There's no question that ongoing CRs and the lack of a budget pose challenges and headwinds here. I think I'm kind of a realist about this. We've had a CR for more or less for the last 10 years. It is a consequence of arriving at a political consensus. And really, we design the business to the greatest extent possible around that reality, honoring that we don't have control of that. But what we do have control of is executing on the programs and delivering more and more capability to the warfighter. OK, Shams Ankar, thanks for joining us. Thanks for having me.

Speaking of Congress, we've got a news alert from Washington on the vote to avoid a partial government shutdown. Emily Wilkins has the details. Emily? Hey, guys. Well, after months of kicking the can down the road, the House has finally voted to actually fund at least part of the government. This is funding that's going to take us through the rest of fiscal year 2024. So that means until the end of September. This funds a number of different departments, including the Commerce Department and a key agency that is overseeing

some AI regulation that actually got about a 10 percent cut to its budget. But there are several other programs that saw more funding, including a key nutritional program. Now, this, of course, is only part of the federal government that's been funded. Other major critical parts of government funding, their deadline's not until March 22nd. And we know that lawmakers are still working on those bills, but they haven't come to an agreement yet. And that second package, it's a little more difficult and includes some really important funding, including for, of course, the Department of Defense. Talking with Plantier there about their outlook. Lots of groups who are very interested to see exactly whether Congress is going to make that deadline, because that's going to be a little bit tougher than what we've seen. But at this point, the House has passed this

legislation. The Senate is up next. But it looks like everyone is on track to avoid that partial government shutdown that would have otherwise been this Friday. Guys? All right. We're going to keep an eye on that. Thank you. Victoria Secrets earnings are out. Meantime, Steve Kovac has the numbers as the stock plunges. Yeah, Morgan, down about 11% here on mixed results of earnings coming in, earnings per share rather. $2.58 adjusted. Street was looking for $2.47 per share adjusted. That's a beat, but revenues a slight miss here. We're looking at $2.08 billion versus the $2.09 billion the street was looking for. Also, we're looking here, a new buyback,

$250 million, and also seeing Q1 revenues down in the guidance, down mid-single digits versus down 1.9 percent the street was looking for that. Could explain some of the drop here. Also seeing full year revenues down low single digits. Street was thought would be down more like 0.4% or so. You see shares just really plunging here down 17.5%. Morgan, send it back to you. Yeah, it's a big mover here in overtime. All right, Steve Kovac, thank you.

Up next, Cloud Flares CEO on yesterday's outages at Facebook and Instagram and his new move into the multi-cloud networking business. Yeah, and LinkedIn's having an outage right now, I think. As we head to break, check out a pair of big movers during today's session. CrowdStrike staging a big rally after beating earnings estimates and issuing strong guidance in overtime yesterday. And Supermicro keeps chugging higher, above 1,000 a share after Argus initiated a buy rating on the stock, saying the company is primed for multiple

years of strong top line growth, margin expansion and EPS acceleration. We'll be right back. Welcome back to Overtime Metas. Facebook, Threads, and Instagram back online today after an hours-long outage yesterday. But it looks like LinkedIn is experiencing some issues right now. One company that's helping its clients with web security and performance is Cloudflare. Cloudflare has just developed a firewall for AI and launched Magic Cloud Networking to help businesses secure their multiple public cloud environments. And joining us now to discuss is CloudPlayer's co-founder and CEO, Matthew Prince. Matthew, first of all, I just want to start with people's expectation now in this digital life that some of these huge platforms will remain up

and they're not. What do you think is going on here? You know, I think that everyone has a bad day. And unfortunately for Meta, they had some what appear to be technical issues, which took them offline. They got back online very quickly. That's going to happen from time to time. And I think it's very impressive that, again, at the scale that these companies are operating at, Meta has almost half the world's population using it in one way or another on an almost every monthly basis that they're able to keep that up. And what we do at Cloudflare is make sure that everybody has those same resources, has the security, the performance, the reliability that the internet giants do and make sure that no matter who you are, we can keep you online. So let's talk about

the multi-cloud aspect of your announcements now in Magic Cloud and the idea that so many clients are using multiple hyperscalers that need those resources and need to be able to manage across all of them. It's a big theme right now in enterprise. It's exactly right. Every single customer that we talk to, even if they're a majority on one cloud, has projects on other clouds, has acquisitions that they do on other clouds. And what they need is one fabric, one mesh, one network, one connectivity cloud that brings that all together, gives them security, reliability guarantees, performance guarantees, and one platform to connect all the clouds together. That's exactly what we deliver to our customers at CloudFlare. And the world is just going to become a more complicated place. It's going to be more clouds that are involved. And through that, we want to be that simplifying factor that makes

sure that whatever you're using, you can have security, performance, and reliability. So how does AI factor into that? And I ask that knowing that you announced a firewall for AI this week. I mean, we talk so much about AI from a cybersecurity standpoint. I'm not sure we talked enough about it from all the other risks that are associated with it, too, including data risks and security as well. What does this enable? You know, when Michelle and I started Cloudflare now almost 14 years ago, the original thesis behind it actually really depended on machine learning. It was that if you could get enough of the internet sitting behind you, and today somewhere between 20 and 25 percent of the web sits behind Cloudflare, that you could

learn from all that traffic and actually use machine learning, what today we call AI, in order to make predictions and protect everyone. That's been the secret to Cloudflare's success over the last 14 years. But what we've realized is that as more companies are integrating AI into their systems, they need something more. They need to make sure that if they have a chatbot, it doesn't accidentally inject a SQL injection attack. It doesn't all of a sudden start talking politics or making up fair results. And what we're providing is a set of tools through our firewall for AI that allow you to put CloudFlare in front of whatever AI systems you're using, whatever alarms you're using, and make sure that you have rules in place that it doesn't create a new security threat for you. OK, we just came out of Super Tuesday. We know that this year in general, not just here in the

U.S. with a presidential election, but around the globe, it's a it's a record year in terms of elections. We've already seen the role that cybersecurity threats, that generative AI are playing in some of the other elections that have taken place already in other countries. What are you seeing from your standpoint as we do come out of Super Tuesday and as we do move through this next eight months here in the U.S.? So, Clubflare provides a number of services at no cost because we think that elections and democracy are that important. And this year, you're exactly right. Almost half of the world's population is voting. I'm really proud to report that a huge percentage of the campaigns that were involved in Super Tuesday yesterday, a huge percentage of the election workers in a majority of the states in the United States are taking advantage of

Cloudflare's tools in order to make sure that the story of the election isn't cybersecurity. We want to give everyone the most advanced cybersecurity tools to make sure that this election goes over smoothly, not just in the United States, but around the rest of the world. And what I can report from Super Tuesday is our team was on hands. We were watching for anything anonymous. And there wasn't any cyber attack that altered the results that impacted the ability of people to vote. And again, I'm proud of the fact that yesterday, the story wasn't any cyber attack that altered the results that impacted the ability of people to vote. And again, I'm proud of the fact that yesterday the story wasn't cybersecurity. Yeah, it would have to be a pretty big attack to alter those lopsided results for sure. But last question from a broad perspective, sales have slowed the rate of growth year over year,

but your dollar based net retention rate has been pretty stable. To what degree do these new announcements open up your total addressable market and leave more room for growth? Yeah, I think that we had a terrific Q4, and it really showed the execution of our team being able to deliver in what continues to be a complicated macro environment. We saw real strength in our federal business, in our large enterprise business. We saw real strength in North America and Europe, while a number of other companies really struggled in those areas. And I think that that's a combination of things. I think it's a combination of that we offer a complete network security platform that can solve a wide range of problems from anyone from the

largest enterprises in the world down to small and medium-sized businesses to individual campaigns that are out there. And in addition to that, we're continuously innovating. The rate of innovation at Cloudflare is just unceasing. This week is one of our innovation weeks. Every single day, we're releasing new security features, and that's something which I think our customers have come to expect, and people are betting on us because they know that we're going to be the ones inventing the future. All right. Matthew Prince of Cloudflare, thanks for joining us. Thank you. That federal business is one that we've been talking about. There's a thread there we've been tugging on. Government's got a lot of money. They

got some money to spend. Well, take this job and shove it or keep this job and love it. Up next, Mike Santoli is going to look at how the quit rate in the latest job openings and labor turnover survey could impact the Fed's rate cut strategy. Plus, HashiCorp shares surging despite weaker than expected guidance. The company's CEO breaks down the quarter. Coming up on Overtime. Welcome back to Overtime. Two words you might be hearing less these days. I quit. Mike Santoli returns to explain. Mike. Yeah, John, in that Labor Department jolt survey, job openings and labor turnover today, the quit rate.

This is the percentage of people in jobs that have willingly and voluntarily left has gone down to pre-pandemic levels. So that's the blue line down to about 2.1 percent on a seemingly adjusted basis. So you see it takes us all the way back here, really the levels that we saw in 2017. So this is a sign of somewhat softening labor market. So you don't have as many people that are looking for the next job, maybe to chase higher wages. And it's correlated with on a little bit of a lag, employment cost index, the compensation component of the ECI, which correlates to wage growth. So this definitely fits into this idea that the Fed is seeing the conditions round into place where they could see their way clear to start easing policy. It doesn't mean they're in a rush to do so. This isn't an emergency, but it's one other incremental move that says that the tightness of the labor market is no longer

something that they have to be concerned with if they really had to be much concerned with it at all, because, of course, inflation has come down a lot, even with low unemployment. There are multiple pieces to this, right? I mean, the job market is part of what's boosted up the real estate market. It's part of what's allowed consumers to keep borrowing. So if that is loosening up a bit, it has implications for the whole economy. It does if, in fact, it spills into the overall employment level going down. I think there's a lot of skepticism. I might have had some skepticism, too, that you could have this immaculate softening of the labor market where the openings come down and turnover slows, but you don't have mass layoffs. You don't have unemployment going up really in a broad way.

And that's what we've seen so far. But of course, a lot of companies assume a certain level of attrition. And maybe if they don't get it because people are staying in jobs, they will have to more forcibly do layoffs. Maybe we're even seeing some of that in tech recently. So I do think you have to be on alert for that possibility. But for now, it's a little bit of a sweet spot. All right. Mike Santoli, thank you. Fed Chair Jerome Powell reinforcing today that the Fed isn't ready to cut rates. He was asked when he expects to start. Here's what he said. It will depend on the path of the economy. Our focus is on maximum employment and price stability and the incoming data as they affect the outlook. And those are the things we'll be looking at.

So former Federal Reserve Governor Randy Crosner joins us now. It's great to have you back on the show. Your thoughts on what we heard from Powell today, certainly from a market perspective, seems to have been de-risked and maybe an expectation that this is the type of message we would get from him. But also a sense that maybe there's a little bit of a dovish slant. How did you see it? I think it was very much on message. He wanted to say we don't want to wait too long. We don't want to cut too quickly. And so I think that means that much as the markets are expecting, the most likely time for the first rate cut will be in June.

He certainly made it clear he wasn't upset that there were some indicators that inflation had moved up a little bit. He said basically inflation is the range we're comfortable with now. It doesn't actually have to get to 2 percent. Our goal for us to start cutting. But we just need to see a few more months of data that say, yeah, we're at around 2 to 3 percent in a reasonable glide path down to 2. And then we can start cutting. Yeah. I mean, in January, we did see certain measures and certain data indicate that inflation maybe was perking back up a little bit. There's been a lot of debate on whether weather was involved or whether this was some sort of seasonal anomaly or a one-off. I wonder how you think about it,

especially as we also got the Beige Book today, which said economic activity, quote, increased slightly since early January. And you are starting to see that debate among economists that maybe instead of a soft landing, we're on track for no landing. Yeah, I mean, obviously, that would be the ideal, that we could have brought inflation down this much and just so we can power ahead. I'm not so sure about that. I think we may see some slowdown

towards the second half of the year. But at least right now, I think the data are coming in broadly in line with the Fed's expectations. If they're broadly in line with Fed expectations, I think the data are coming in broadly in line with the Fed expectations. If they're broadly in line with Fed expectations, I think that means most likely a summer cut probably in June. Randy, how quickly could all this turn, though? This reminds me of standing on the playground balance beam with one foot. You know, you have the loosening labor market, stretched consumer credit, retailers reporting expectations of a slowdown later in the year. I mean, those could turn into dominoes, could they not? So that's kind of my main forecast is that it's only recently that when you adjust for inflation that we started to see wages grow. That is real wage growth. It's only recently that when you adjust for inflation that the borrowing rates, the

interest rates, become positive. That is positive real interest rates. We haven't had positive real interest rates in two decades. So it's going to be more costly to borrow. It's now more costly to hire laborers. And as you were just hearing that I think some of the people in the labor market are less certain about it than they were before. So you've got a lower quit rate. And so I think these chickens are going to come home to roost. Not immediately. I think the economy is doing fine right now. But I think they are going to weigh on things and we'll see a slowdown in the second half of the year.

So what does the type of environment you just described tend to mean for fixed income? And so I think it means that we're not going to see any spike in inflation, so we're not going to see a spike up in inflation expectations that would affect long-term interest rates. I think to the extent that there would be a bit of a slowdown, all of the things being equal, that would probably be a little bit less demand for investment, so maybe a little bit more downward pressure on interest rates. But I don't think it means, at least for the longer rates, I don't think that means there's going to be any major gyration. The shorter rates, that is very much affected by the Fed's decision on rate cuts. So we just saw what happened today. There's a capital infusion into New York Community

Bank Corp. That name has been beleaguered here for the last couple of weeks. Again, going back to the Fed chair on the Hill, he talked about Basel III endgame capital rules seeing potentially broad and material changes. Also said that commercial real estate risks are, quote unquote, manageable. Earlier today on Squawk Box, we had a high profile real estate developer, Scott Reckler,, who basically said, hey, we're not out of the clear in terms of commercial real estate and some of the pain that's still yet to come. Do you think the Fed and regulators fully have their arms around the risks here with rates still high? Maybe we start to get a cut in June, but rates still high for the regional banks. I think this is going to be a major

challenge for the regional banks because they are the ones who are most exposed to commercial real estate. And some parts of commercial real estate are doing fine, like warehouses. But other ones, like office buildings in major cities where nobody's coming back to work, or at least fewer people are coming back to work and retail, they're getting hammered. And with New York Community Bank, they have a lot of apartment buildings in New York, and they're getting hammered there because of rent control issues. So I do think this is going to continue to weigh on them. The Fed is certainly aware of this. You know, will it be perfectly smooth without a bump? I wish I could say that would be the case, but I'm sure there are going to be some bumps along the way. But I think

it's a really good sign that New York Community Bank was able to raise capital. One of the things that caused the disruption with Silicon Valley is they went out to try to raise money and nobody wanted to invest in them. Yeah, that's painful when that happens. Former Federal Reserve Governor Randy Kroszner. Thanks for joining us. Up next, HashiCorp shares surging today, ending the day up about 10%. We're going to hear from the CEO with his take on the quarter after this break. And as we do head out to break, a quick look at two retailers that are under pressure today. Footlocker stock plunging down 29% today after reporting a Q4 loss, issuing weak guidance for the current year.

And Abercrombie slipping despite beating expectations on the top and bottom lines. Those shares finished down about three and a half percent. Overtime. We'll be right back. Welcome back to Overtime. Let's get another check on shares of Victoria's Secret. Those are down 24% right now. The company reporting mixed results, weak revenue guidance for Q1. Also announcing, though, a $250 million share buyback. As I mentioned, that stock is sinking post-earnings here in overtime.

And shares of HashiCorp rallied today after beating Wall Street expectations in its fourth quarter earnings report. Guidance came in weaker than expected, though. For more on those results, let's bring in HashiCorp CEO Dave McJanet. Dave, welcome. Nice to have you on a day when the stock's been higher. And I wonder about this. We just had Matthew Prince on from CloudFlare. Multi-cloud, a big topic here in enterprise. What are the trends that you're seeing both supporting growth and perhaps not as much growth as soon as some analysts had expected? Hey, John, thanks for having me. Yeah, there are probably several countervailing things going on. I think number one is we're going through this optimization cycle in the infrastructure market for the last 18 months or so. And

certainly, you know, that shows of uh being closer to the end than the beginning and that that's a that's a positive uh on the on the through the new business side what you're really seeing is you know the market's settling into a steady state there are reasons for deploying things in cloud the reasons for deploying things on private data centers there are things the reasons for deploying apps on edge like with cloudflare and that's just the where the market has settled in so certainly optimization cycles certainly seem to be a little better than they were but that's sort of an extra trend of deploying new things to new infrastructure types uh it's just the way the market you know always always will work and that's that's kind of what's driving the steady state of growth i think for all of us

we've been talking a lot over the past year about subscription models versus consumption models, and a lot of enterprise companies sort of wanting to dip their toe in the water, even if it's going to end up costing them more at some point by going with consumption. If I recall, you guys are more on a subscription model. How is the appetite for that kind of stabilizing or shaping up as overall? I'm hearing that enterprise is getting a bit more predictable. Yes, I think at the infrastructure layer, there's always been a bias for the subscription, this consumption-based model, because it's kind of like utility. It's hard to predict what you're going to use, but you know you're going to need some of it. So I think always, there always has been, always will be a desire for those consumption-type models.

Now, there are pros and cons of that. When people are growing more than expected, that's good for vendors. When a contraction cycle hits, that causes revenue to decelerate in a way that's a little bit unpredictable. But I think overall, that trend is inexorable. You see Snowflake and others using that model. You see the cloud providers using that model. And I think the enterprise appetite for that model is appropriate. I think it's taken a while to get people comfortable with it, but it's very clear that infrastructure is a

bit like a utility and people want to consume it that way. As you point out, we predominantly offer a subscription-based model, so not a consumption-based model to our offerings. And that's appropriate for us, given that so much of our products are installed on places like Cloudflare and on private data centers. We don't have the same way of consuming, but it's certainly something our customers would like. And I think it's something you'll see in the future for most infrastructure companies. HashiCorp at this point doesn't seem to be generating a ton of extra cash. So why the buyback authorization? Yeah, so we flipped into the cash flow generation mode a couple of quarters ago and we indicated from here forward, we expect to be cash flow generation mode a couple of quarters ago and we indicated from here forward

we expect to be cash flow from operations generating and that puts us in a good comfortable position to be able to decide what best to do with the capital we have in our balance sheet we have about 1.3 billion dollars in capital on our balance sheet which is certainly large enough to sustain what we need to do we just think the time is right uh we think our you know we're optimistic about our future and we think that the time is right to use some of that excess capital for the share we purchased that we announced earlier today. But it's really underpinned by the fact that we're a cash-generating entity, and we've matured to that stage. And it's sort of a logical, responsible thing to do as we think about how best to grow shareholder value over the longer term. I'm sure that factors into some degree in the stock investor reaction here. But

what does it do for you from an M&A perspective? Does it constrain you at all if you want to buy stuff? No, it really doesn't, because, again, we're generating cash. We have $1.3 billion in cash remarkable securities on the balance sheet. So really, as a percentage of our overall value, our cash position is a substantial portion. So I think we're very, very well positioned to be able to have whatever flexibility we're required to keep investing in the things that we see in front of us. But for now, it seems like a good prudent use for capital. All right. It's a good day for HashiCorp. And thanks for joining us on it. Dave McJanet, the CEO. Thanks for having me. Up next. Earlier today, I caught up with the CEO of GE Vernova. What he had to say about what AI might mean for the future of power infrastructure.

And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We will be right back. Welcome back to Overtime. GE Vernova hosting its investor day today ahead of its split from GE Aerospace that's set to happen on April 2nd. The soon-to-be independent company providing long-term financial guidance as the maker of gas and wind turbines continues to grow and inflect more meaningfully when it comes to profitability. It's expecting as much as $1.8 billion in free cash flow next year, which represents an increase from this year, an adjusted profit margin of 10% by 2028. Now, I spoke with Renova CEO Scott Strasik, and I asked him what this generative AI age is actually going to mean for demand for more power and thus more grid infrastructure.

Here's what he said. He said, quote, There are so many headlines today on chip shortages. There aren't as many headlines on the electrical power needs. But the electrical power needs could become very quickly the critical factor towards this artificial intelligence growth growth. He says we're very early in the conversation here. In 2020, just to give you some perspective, 2% of the electrical load in the U.S. was data centers. Strzok noting that could be at least 8% by 2030. And the first customers think utilities. These businesses have run with limited growth, less than half a percent annually over the past 20 years.

Data centers alone could take that up to potentially 2 percent growth per year. Strzok doesn't think this adds to electric grid instability, though. He actually thinks this could cause some tech companies, for example, to consider standing up their own power solutions. Think the potential for power parks, accompanying data centers, perhaps. But to be clear, he sees this playing out not over the coming months, but over the coming years. Shares of GE writ large finished the day up 1%. And John, this was fascinating. We get GE Aerospace's investor day tomorrow as well. So another piece of the puzzle to watch. Can companies do that and still make it green, though, I guess is the question. So this is like a key part of the dynamic. And it almost

brings me back to what Bill Perkins said on our air not that long ago, that perhaps in the U.S. we're facing the possibility, especially in this world of increasing electrification, of a power grid crisis. He doesn't think this is going to cause instability, but it is that tug of war and that push of pill, push and pull when you talk about decarbonization. Victoria's Secret down 24 percent now in overtime. If it were the regular trading day, it would be back at October levels. And tomorrow, again, we've got Kroger, Costco and Broadcom reporting.

Yeah, Broadcom is going to be a big one. It's been one of those AI high flyers. And then, of course, we look to jobs on Friday, too, as we have had some of this macro data suggesting perhaps that we're starting to see more easing of the labor market, which we know is still historically relatively tight. Yeah. More Powell, too, tomorrow. Yes, indeed. All right. Stocks finished today higher. That's going to do it for us here at Overtime. Fast money starts now.