Closing Bell - Closing Bell Overtime: December Keeps November’s Market Momentum; Palantir CTO & GlobalFoundries CEO On Defense Tech 12/1/23

Episode Date: December 1, 2023

The S&P 500 closed at a 52-week high as the first day of December carried over strength from November. Jefferies’ David Zervos and 3Fourteen’s Warren Pies break down the market action. Morgan is at the Reagan National Defense Forum and sits down with Palantir CTO Shyam Sankar on how the company is using AI to win clients and GlobalFoundries CEO Thomas Caulfield on global chip supply chain and its impact on geopolitical tensions. Our Angelica Peebles on Pfizer’s worst day in two years. talks the company’s clients and AIP Bootcamp. Plus, Samsara CEO Sanjit Biswas on strong earnings and bringing efficiencies to transport companies. 

Welcome to Closing Bell Overtime. I'm John Ford at CNBC Headquarters. And I'm Morgan Brennan in Simi Valley, California at the Reagan National Defense Forum. On a day when the defense and aerospace ETF, the ITA, hit a record high, we've got great guests with me this hour, including the CEO of chip contract manufacturer Global Foundries and the CTO of Palantir Technologies, an AI name that's up more than 200 percent this year. And it's been a banner week for cloud stocks with the WCLD ETF at multi-month highs, up more than 4 percent today. We're rounding out cloud week here on Overtime with two CEOs whose stocks are surging today on earnings, Samsara and Elastic. Let's begin with the market, though, just wrapping up the fifth week in a row

of gains for the Dow and the S&P 500. The S&P just closing at a fresh 52 week high, led this week by real estate materials and financials. We're seeing increases across the board for the major averages today, coming even as Fed Chair Powell pushed back against hopes for a rate cut in the foreseeable future. CNBC's senior markets commentator Mike Santoli joins us now. Mike, to me, the real takeaway here is the fact that the equal-weighted S&P, the Russell 2000, the Dow Transports, these have been the big outperformers in recent sessions. It speaks to the rotation or maybe, dare I say,

the broadening out of the rally right now. Yeah, no doubt, Morgan. People have wanted a more inclusive market, one that wasn't just dominated by a handful of the acclaimed growth stocks. And we're getting it. And again, you're starting off a low base for these stocks. What was necessary for it to happen was for people to start gaining comfort, that there was a decent economic resilience story that was going to continue into next year, the Fed getting out of the way, financial conditions easing quite a bit. I mean, I would put banks and other financials in that category as well. So the pressure came off all those areas of the market.

It's not as if the big Nasdaq stocks are collapsing. So therefore, the overall index, like the S&P, can make it to a new 52-week closing high and revisit these levels where there was a general embrace of the soft economic landing story. Now, we don't know if it's going to play out that way, but a lot of the inputs are suggesting that they are. And the deep pullback in Treasury yields has basically reflected and encouraged that movement. Mike, there's a crowd out there that's been trying hard, hard not to love technology stocks. But when you see these couple of names that we're going to have on the show today, Elastic, Samsara, for example, growth companies that people had wanted to argue at various times were expensive. Look at them. Look at the WCLD and the performance it in particular has had over the past month.

What does it tell you? Well, it tells you, John, that technology has been as bifurcated as any other part of the market, right? So you had Microsoft, Apple, Nvidia on one corner of the S&P technology sector, and then really most of the rest of the market in tech was not participating because people were all of a sudden sensitive to valuation, but also this idea

that macro risk was out there. And there were just too many of these companies vying for the same business. Now there's a rediscovery of some of these business models. They've matured to a point. There was a very crowded class of 2020 and 2021 of these newish companies that glided the market. They all got marked up. They all crashed together. And now people are going back and trying to find, you know, which ones actually have the best stories and rewarding them accordingly. I encourage everybody to look at two and three year charts of these things if they look like they're up a ton right now, because often you'll see that you're just coming out of a long base from depressed levels. As always, Santoli's given us context. Mike, we'll be back to you in just a moment. For now,

let's continue this conversation with our market panel. Joining us now is David Zervos of Jeffries and Warren Pies of 314 Research. David, the real estate sector led the S&P today up more than 2%. KRE Regional Bank Index was up 5%. How does this feeling that we may have reached peak rates influence those and then these other equity moves that we're seeing? You know, I think a lot of that, Jonathan, it's all the rate move, right? It's the real estate investment trust have all been hit because of the refinancing risk on commercial real estate. And KRE is all of the underwater holdings that they have that they haven't marked the market. And that's why it was down 20 percent. Now it's only down 15 or 14 percent.

I didn't look at the final for today, but it's still down a lot for the year with the big banks up much, much more. I think JP Morgan was up, I don't know, 30 or 40, 30 percent or something like that, 25. So, I mean, there's still a lot of dispersion, but this is all rates. Everything that's going on here is the move from 5 percent 10 years down to 4.25 percent 10 years. We're repricing the dollar. We're repricing higher for longer. People are getting a little bit ahead of their skis, I think. I don't think it's going to come as soon as people think, but the inflation data is great, and I think the Fed looks about as good as they could look,

given the scenario that's developed in the last 18 months since we peaked at 9% inflation. Warren, we've got Fed Chair Powell trying to talk down expectations of a rate cut today. Have a listen. It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so. The market doesn't seem to believe that that dad is really coming downstairs to enforce that necessarily. So what do you think the impact is from here? Can the Fed talk the market down? Is that necessarily what's happening here? And how important then is this next Fed meeting? Well, I think the next Fed meeting is their last chance,

really, before the next year and the potential cut cycle starts. That's where they release their summary of economic projections. And, you know, I think there's some things they could do at the terminal rate and try and pressure the market in certain ways and send a signal. But I think at this point, kind of the horse has left the barn. And you have to look back to really, I think, a battle that's taking place within the Fed between John Williams of the New York Fed and Chris Waller of Minneapolis Fed. And Williams is kind of a dove. And he's argued for months that what's going to happen is we're going to pause and then inflation is going to fall and we're going to have to cut rates to maintain restrictive policy. And so he's saying cutting is part of this restrictive phase, which is kind of this way of backdooring an attempt at a soft landing.

And Waller confirmed that this week. And so he came out as this quintessential hawk. And now he came out and has blessed that kind of approach and says that he's seen something change. The unemployment rate has gone up and we're seeing loosening in the labor market. And when we look at the inflation data, it's on a glide path lower just because of shelter inflation at the very least. It's 42% of core. And we can kind of back out that that's going to be a rapid level of disinflation. So from our perspective, there were always three big elements to a soft landing. You needed, obviously, a resilient economy. You needed rapid disinflation and then a hyper reactive Fed. We were doubtful the Fed would be hyper reactive. But the comments from Waller this

week, I think that's what's really driving what you've seen in the futures market expectations for cuts. And in my opinion, our opinion, from the way we look at the data now, I can't make a recessionary case. This fall in rates is very stimulative to a real estate market that's been resilient, as can be. And ultimately, you know, that's what I see happening is the economy staying strong and cuts in May. Yeah. David, I want to get your thoughts on this as well, whether it is Waller, whether it is Powell earlier today, especially in light of the fact that you did put out this note right before Thanksgiving saying entitled Misunderstanding U.S. Inflation During the COVID-19 Era, in which you did not mince words about the Phillips curve and the fact that economic

modeling has gotten this inflation and economic cycle wrong, even calling out some well-known economists. In this note, what do you think about the Fed speak we've gotten versus what you're seeing within the economy right now, and how does it position us next year? I thought Waller was a surprise, but I think there was also a lot of give and take in his speech. I think he hedged that speech. I wouldn't get too caught up in the Fed going quick idea. I don't see it. I think Jay pushed back on it. He's going to keep pushing back on it. They have no need to go quickly. If you go look at the dots from last September, they had inflation at the end of 2024 at 2.4 to 2.5 percent PCE core, which is gliding significantly lower from here. And they had no rate cuts. They had basically a five to five and

a quarter funds rate built into that end of year forecast. So we would need to see much, much faster disinflation, I think, than what we're even getting now. And this is the place where it gets a little harder to get that, Morgan. So I don't know. I'm not negative, but I just think the market's kind of a little overexcited about these March or May cuts. It's an election year. The Fed's going to want to do as little as possible. They're not going to want to give you massive rate cuts. I think the economy is actually doing really well. I think they've done a great job. I think they can rest on their laurels a little bit and not make the mistake of giving us a bunch of cuts

and then going, whoops, oh, my goodness, inflation ticked back up a little bit. That's the last thing Jay wants, especially when he's got only a couple of years left before his term's over. He wants to go down as the guy that killed this inflation, not the one that let it sneak back in. Yeah. And of course, in the near term here, we now go into a Fed blackout, media blackout period. And the next big data point is really going to be the jobs report a week from today. Warren, you've seen a rally in stocks, you've seen a rally in bonds, and you've seen commodities, particularly oil, sell off recently. Where do you put money to work? Yeah, we've been playing on the fixed income side. We've been overweight on October 19th, which actually happened to be the highs in yields, and we just closed that out yesterday. So

I think that the move in the bond market is overextended. I think given the fact that we can't make a case for a 2024 recession as we stand here today, you don't want to be underweight stocks as the Fed is. The next question is, when do they cut? It's just a matter of when and how much. So the Fed goes from a headwind to a tailwind. It is a presidential election year, which is a positive year for the markets, 83% of the time. And I don't know. I'm not as confident as David that that's going to be a restraining factor for Powell.

I don't know how that plays out exactly. And if we get any kind of weakness in the market, does the Fed put reemerge, especially if the real Fed funds rate is 2.5% by March or June? So for my money, I'm taking cash out of the bond trade that we played. I'm equalizing our equity weight. I'm building a little bit of a cash position and waiting to see what kind of opportunities arise in the new year. OK, gentlemen, thanks for kicking off the hour with us, Warren Pies and David Zervos with the S&P finishing the day just below forty six hundred at forty five ninety four. Yeah, that's right, it's right there. Pfizer, though, sitting out today's rally

after the company stopped a trial of its twice-daily weight-loss pill due to side effects. CNBC's Angelica Peebles joins us here to discuss. Angelica, Pfizer has sat out just about every rally this year. I mean, look at a year-to-day chart. It's like a kindergarten slide.

So was this a surprise or just a continuation of bad news? Yeah, well, investors are grappling with the decline in the COVID vaccine business, of course. That's really what's propelled the stock over the last few years. And people saw obesity as a possible next step, a new source of growth for Pfizer. And now this is disappointing, right? They had this drug, this twice-a-day pill for obesity, and now they're saying that they're not moving it into phase three trials because there were such high rates of side effects and people just really couldn't tolerate this drug.

And so they do have a once-a-day formulation of the same drug that they're working on and they'll continue to test it. They'll have some data on that next year. But this is certainly a setback for Pfizer. If I'm trying to bring forward some on the other hand energy from yesterday, right, like so much of the market has been rallying. Pfizer hasn't. One more piece of bad news to start off the last month of the year. What's the argument if there is one out there that 2024 could be better for Pfizer? Well, they do still have this once a day formulation that they're working on. So hope is not lost. They also have another oral that they're working on that's much earlier in development.

So there is still a possibility in obesity. And if you talk to the company, they'll tell you that they see Segen. That's the cancer company that they're trying to acquire. They see that as a really big growth opportunity for them. They also have a new RSV vaccine. And so if you talk to Pfizer, there's plenty of opportunities. People just need to get past the COVID business that they've been so focused on. Well, there's always next year.

Angelica, thank you. Mike Santoli is back with today's market dashboard, looking at a big round trip for the S&P 500. You love to do these round trips, Mike. Break this one down. I know. It really fits into my prevailing mode of we've been here before. We're not seeing anything new. However, it is important to look at the distinctions in terms of the conditions. Two-year on the S&P 500, there is your round trip, up 1.8 percent. But on 11-30 of 2021, we finished at the same level as we finished yesterday on the same date. And also, just nosing slightly above the July highs, obviously, right here, what was ahead of us was a big decline in earnings expectations, a Fed rate hike cycle, a huge rise in bond yields. So that's all that we had to sustain there. And I would also argue, while investors are getting

more bullish and overoptimistic and more kind of risk-seeking, not quite to even where we were back in July. Now, look at valuations. That's another piece of this puzzle. Same level of the S&P 500, but lower valuation because earnings have come through. So if you look at the price earnings ratio, S&P 500, there you go, 21 back in July. It was also just under 20. Now, I mean, under 19, not cheap, but here's the equal weighted S&P. As you can see, that's not where the valuation excesses has been, guys. I like that you broke it out, too, because there is noise in terms of whether the S&P is fairly valued, overvalued or even undervalued, especially when you strip out the magnificent seven here. I mean, I guess I guess how does this position us for 2024 based on earnings estimates that we have so far,

which do seem to be at least stable and have not come down, at least not down much in recent weeks? I think it almost comes down entirely to the believability of those earnings forecasts. So if we're getting toward double digit earnings now, it doesn't have to actually hit the perfect number that's now projected. But if you kind of move in the right direction, you have an earnings recovery and aggregate. Usually the stock market can stay supported in that environment. That obviously means the economy can't fall apart. So to me, it's not so much about exactly what valuation you're paying today on current estimates as do the estimates come through. If so, the market's probably OK.

OK, we're going to do a round trip back to you a little bit later in the show. In the meantime, Mike, thank you. After the break, the CTO of Palantir joins me here at the Reagan National Defense Forum with that stock up more than 215 percent this year. We're going to discuss the latest in the war in the Middle East, the role that AI is playing when it comes to defense and national security and so much more. Overtime's back in two. Welcome back to Overtime. Geopolitics in sharp focus today as Israel resumes airstrikes in Gaza after a week-long pause in fighting. This as Ukraine President Zelensky said this week that they have entered a, quote, new phase of war in that country. Joining me here exclusively at the Reagan National Defense Forum, Sham Sankar, CTO of Palantir Technologies, which is up more than 215 percent since the start of the year.

Sham, it's really good to have you here with me. Thanks for being here. Thanks for having me, Morgan. You do have technology deployed in Ukraine. You also work very closely with Department of Defense here in the U.S. and other government agencies. Is your software being deployed to Israel, too? Yeah, absolutely. I actually have come to Reagan from Tel Aviv. So we are proud. We've been unequivocal in our support for Israel and their right to defend themselves against these barbaric attacks. And we've worked in Israel since at least 2014. OK. I mean, we talk a lot about demand for hardware and weapons and munitions stockpiling, etc.

Are we seeing the same sort of demand for software and technologies? Yeah. The need to make better decisions quicker that are more precise, more protective of civilians, that enable you to take the advantage over the adversary has never been more clear. We've seen that play out on the battlefield of Ukraine and how asymmetric that capability can be. We're seeing it play out in totally different domains like Israel now. And there are a lot of lessons here that I think are going to apply as we think about the Pacific theater. OK, lessons like some examples. How are you going to fight in a coalition environment? You think about, of course, Israel has to do so much,

but we're supporting not only Israel but also her allies. How are allies involved? There's the logistics and supply chain element of this, but there's also the broader collaboration, situational awareness, the evacuation of noncombatants. We have to bring all of those things that we really started learning since Afghanistan to bear in the next theaters that provide geopolitical challenge for us. And of course, Palantir is a dual-use technology company, really one of the first ones

to the public market. So you work with government. You also work with commercial and private sector as well. And you're also one of those companies that has been working on developing and deploying AI for quite a number of years now. So as other companies are thinking about investments, you're already monetizing your investments. These AIP boot camps that were talked about in the third quarter earnings, these artificial intelligence platform boot camps, I think there had been an expectation that maybe you would sign on 140 companies in the month of November to these boot camps.

I guess walk me through what they are and how many people, how many companies have shown interest. Yeah, so these boot camps, we've rebuilt our entire go-to-market around it because it's really this magical experience where you get your hands on the keyboard for eight hours and you leave that experience with a production-ready use case. And with even more than that, a deep and intuitive understanding of how do you apply this technology to get real results. More than a proof of concept, actual proof that you can take to your enterprise and get results. And so this has been a profound change for us. And we've been, so we ended November, we thought we'd do 140, we did it for 200 organizations. We're on track this year to serve 325 organizations with boot camps. And we've really focused

on commercial so far this year, particularly focused on U.S. commercial. Next year and into December here, we're really going to be bringing this to the U.S. government as well. And we saw in the third quarter re-accelerate growth on the commercial side. It also, I would imagine, lowers your marketing costs and creates a stickier environment in terms of more companies coming on board. Is that what you're continuing to see? We're continuing to see that. I think one of the most profound effects of, let's call it, 2023, the year of reinvention around chat GPT, is the expectation that software is actually going to work and the accountability that's around that. So people want to leave with eight hours of effort realizing they can put something in production. I do want to talk to you about something else that is on your

website, but I don't know that it has been discussed very much publicly yet, and that is Palantir Web Government Services. Is this a new business strategy for Palantir? Yeah, the idea is, you know, we were one of the first defense tech companies. We spent 20 years kind of building this wormhole between modern American software and the Defense Department. And there's not just your product, there's all of this software infrastructure you need just to get to the starting line when you're dealing with an institution like the DoD. How do you get on their networks? How do you deal with accreditation? How do you get to data?

We now have $100 billion of capital deployed through VCs, hundreds of new entrants in this category, which is so exciting. I want to help them succeed. And uniquely, Palantir has spent the last 20 years banging our head against the wall, needing to develop technologies that I know they're going to need

to get to the starting line. And so Palantir Government Web Services is really about bringing that to them, helping them succeed faster, bend the revenue curve, bend the cost curve, get to that next round and survive the valley of death. I mentioned the fact that you're already realizing returns on all of your AI investments and software investments. You've had four quarters of profitability. You're now eligible for possible entry into the S&P 500. Are you expecting that? Are you gaming that out?

What would that mean for the company? I think it's one of the things you can't really have expectations around. But what I think it would mean for the company, and actually, more importantly, the broader defense tech ecosystem, it's been 45 years since an actual defense company, one not born out of mergers and spin-outs and other financial engineering, but a new venture formation has been added to the S&P 500. The primes, they were added on March 4th, 1957, which is the year that the was created. So that doesn't feel like American dynamism to me. I think it feels more like the sclerotic nature of European capital markets. And I think we should bring the best of America to this. And I hope we would be the first of many of these hundreds of defense companies

that have an opportunity to participate. Shams Ankar, so great to speak with you. Palantir Technologies, thanks for being with me here at the forum. Thanks for having me. Well, we're going to stick with the AI theme. I toured Andral Industries, speaking of one of those defense tech companies, HQ, where the defense tech unicorn is unveiling a new autonomous jet-powered missile interceptor. Developed in secret over the past two years, the Roadrunner takes off vertically like a

rocket and then it turns to fly at hundreds of miles per hour like a plane towards its target. And what's really a first for this type of weapon, they can then return it home to be reused. AI is doing all of the piloting. So it's calculating its own optimal flight path, its own optimal intercept path, and then it's executing on that planning. And that's really key.

So this is Lattice in action. That's the power of Lattice. And the really cool thing about that is I can have one person as a part-time job managing an entire fleet of these aircraft. That is radically different than manned aircraft. So this will cost low six figures, specific price undisclosed, but compare that to RTX's Patriot missile,

which is up to four times that price point. Anduril's founder, Palmer Luckey, will join me exclusively in the next hour on Fast Money to discuss all of that more in greater detail. John. Looking forward to that. And when we come back, we're finishing up Cloud Week on Overtime with a thunderclap. We're going to hear

from two CEOs whose stocks are breaking out today, both up more than 25 percent on the back of their earnings reports as the whole cloud sector gets a big lift this week. We'll be right back. We are wrapping up Cloud Week on Overtime with the WCLD ETF jumping this week to multi-month highs. Elastic getting a huge earnings bounce. That stock closed up 37 percent. I spoke with CEO Ash Kulkarni about how the combination of tight IT budgets and the AI imperative are driving growth for him. Across the board, the thing that I'm hearing from CIOs is that there is a pressure on their overall budgets. So budgets still remain tight. They expect them to remain flat going forward in the near term. But there is also this need to invest in generative AI. There's this massive

opportunity and this promise that they're seeing in being able to optimize their business processes, in being able to give better customer experiences. So it's a double whammy for them. They need to somehow manage to a fixed budget, but do more here in Gen AI. And the value proposition that we come in with is to say, look, first of all, on the Gen AI side, we are the platform that grounds these large language models in your business context, allows you to deliver really compelling Gen AI applications and experiences, we can help you there. But more importantly, we can also help you with our search analytics platform on improving your observability and your security use cases. And we can do what you're currently doing with three, four, five vendors in one

single platform. Big move there. In the meantime, Logistics and Operations Cloud Specialist Samsara is surging 25% today, second best day ever after strong sales, guidance, and margins. Revenue grew 40% versus last year. Annual recurring revenue topping a billion dollars for the first time. Joining us now, Samsara CEO and co-founder Sanjit Biswas. Sanjit, we keep meeting like this, post-earnings with a move. I'm particularly

interested in how this drive toward efficiency in so many companies is actually powering some companies' growth. It seems that yours is among those. Absolutely, John. Well, first, thanks for having me on. It's great to see you again. We are seeing that trend, not just for our company, but really for our customers. I think every business is trying to find ways to be more efficient. We work with the world of physical operations. They have lots of expensive assets. They have lots of labor. And everyone is trying to find ways to make their business a little bit more efficient in this economy. So when energy prices drop, and I know some of what you do is fuel efficiency monitoring, does that lessen demand or does it just drive the need to measure where you can get additional savings? I would say for context, many of our customers spend $30, $40, $50 million a year on

fuel. And so it's great for them if they can see a $0.20, $0.30 drop in price per gallon. But really what they're trying to do is find fundamental improvements in their efficiency. They're trying to see, can they run all their routes? Can they do their jobs with 10% fewer vehicles? Can they replan how they're visiting their customers? Those sorts of fundamental things. So while they're sensitive to the price of fuel, they're always trying to find those big step changes if they can. Got it. I wanted to go beneath the covers on this land

and expand cadence that you have with customers. What's the typical chain of expansion? What are the customers starting with and where are they ending up? I'll give you an example. We spoke about a specialty contractor that we work with who's a very large scale company. They've been customers of ours since 2018. So they've expanded with us over a dozen times over the last couple of years. In some cases, they're moving across subsidiaries. So they'll start in a pocket of their business and expand to cover the entire, you know, US geography or all of North America. In other cases, you'll see an equipment manager say, hey, this software could be really useful for improving our safety. And so they'll move from just tracking their assets to actually improving their risk. And they do that with

the combination of our AI cameras and the software workflows we offer for coaching. That would be a very typical expansion for us. And that might more than double their spend with Samsara. How much is that land and expand chain changing? You mentioned some million dollar customers signed in the quarter who actually started out with equipment monitoring. You mentioned some million-dollar customers signed in the quarter who actually started out with equipment monitoring. Can you say more about who those customers were? Don't need necessarily details, of course, anything proprietary. But give us a sense of what type of equipment they're monitoring and the sort of benefit that they could get from that. So on equipment, this is a part of fleet tracking that people don't often think about. People often think about trucks and vehicles on the road.

There's a lot more equipment out there than there are trucks. So one of the stories we shared on the earnings call was a very large, low-cost airline carrier. And they are tracking all that equipment that exists out on the airfield that's below the wing. So think about the generators and the baggage carts, all that kind of supporting equipment. That's something where they wanted to figure out ways to be more efficient. Those assets are expensive and has direct operational impact. So that's an example of equipment tracking. To answer your question around expansions and million-dollar-plus, we've had record growth with our large customers.

So our top-line revenue grew 40% year-over-year. Our revenue from $100,000-plus $1 million plus customers grew even faster. $100K plus was over 50% growth. And that's the kind of excitement we're seeing with large, complex physical operations companies. Now, right before you and I started this conversation, we were hearing from Ash Kulkarni over at Elastic about how companies are using Elastic to really get benefit out of their internal data. Now, some of this internal data they're getting from Samsara, being able to understand what's happening with the field, what's happening with their equipment.

Where are the generative AI models going to come from that they're going to use to get additional benefit out of that data? Well, that's what generative AI is really all about, is data and finding patterns and insights in that data. For us, we've been able to amass a pretty tremendous data set. We have 6 trillion data points that flow into our cloud every single year across all of these customers. In many of those cases, that's GPS data. Sometimes it's tens of billions of minutes of video footage coming from dash cameras. We see documents being scanned. We see workflows being processed.

And so there's a lot of data there to train generative AI models based on. And that is something that helps our customers be more efficient in their operations because now they can speed up their workflows. They can find insights in terms of efficiency. They can figure out ways to reduce risk and be safer. So that's the exciting part about AI is all of this data, you can use AI to make sense of it, find insights in the data,

and then take action based on it. All right. From the digital world to the physical world and back, efficiency driving this growth. Sanjit Biswas from Samsara. Thank you. Thanks, John.

Well, it's time now for a CNBC News Update with Bertha Coombs. Bertha. Hey, Morgan. The locks are changed and the sign bearing George Santos's name is already removed from his former congressional office in Washington, D.C. The House clerk will now oversee Santos's office until his successor is chosen in a special election. The House voted overwhelmingly to expel Santos this morning as he faces a 23-count federal indictment. He became the first House member in modern history to be expelled before a conviction. The Air Force grounded a set of Osprey aircraft after one of those planes crashed into the waters of Japan earlier this week. One person died and seven remain

missing. The Pentagon says ospreys out of Yokota Air Base are not conducting flights, but other ospreys in the region are flying. And Russian President Vladimir Putin ordered the country's military to expand its army. It will grow by nearly 170,000 troops to a total of 1.3 million. The Defense Ministry says the increase will take place gradually by recruiting more volunteers. Military officials in Russia say the boost is in response to NATO's armed forces being built up near Russia's border as Moscow's invasion of Ukraine continues into its 22nd month. You know, Morgan, there was a phrase back in the Soviet Union, voluntary compulsory.

Kind of brings that to mind. Bertha Coombs, thank you. After the break, there's one big factor that's working in consumers' favor as we head into the homestretch of the year. Mike Santoli will break that down. One big factor that's working in consumers' favor as we head into the home stretch of the year. Mike Santoli will break that down. And later, the CEO of chip contract manufacturer Global Foundries joins us here in Simi Valley to talk chip demand and the interplay between the semiconductor industry and geopolitics. Stay with us.

Welcome back to Overtime. Lower prices at the pump are bringing consumers some relief. Mike Santoli is back with a look at how this impacts consumer discretionary and staples. Mike? Yeah, John, of course, a lot of focus on the decline in bond yields, taking the pressure off the housing markets and consumer finances for good reason. But the gasoline price relief is real. This is a two-year chart of the national average for all formulations.

This is basically across the board. Price per gallon down about 60 cents per gallon in the last three months or so. That's a couple hundred million bucks a day on average. That's now in consumers pockets that otherwise a few months ago would have been going to pay for gasoline. So all to the good near two year lows. We got rid of that entire Ukraine war spike and all the rest of it. Now, consumer discretionary stocks, you wouldn't think have been sort of the area of leadership for this market. But compared to consumer staples and the discretionary versus staples relationship is one that really a lot of people watch to see the health of the cyclical parts of the market. It's holding up quite well on a one year basis,

especially this is the equal weighted consumer discretionary relative to consumer staples. And you see basically trading at the highs for the last year. Now, going back farther, this was a massive underperformer in 2022. So there could still be room. You could also argue consumer staples themselves have been badly positioned. They're not well equipped to deal with a decline in inflation. And those stocks have been kind of ugly. Nonetheless, this does suggest that the market recognizes that there is some fortitude in consumer spending power for a while. And Mike, a holiday season is all about consumer discretionary. Two hundred million dollars a day. We know exactly where that could go. How much should we think about that and the continuing rise of buy now, pay later?

When we think about the capacity of consumers to spend through this entire holiday season? I think there's the ability in aggregate to keep up spending levels is there. Now, you don't want to deny that there's been some fraying around the edges and there's some stress at lower income levels and all the rest of it because debt burdens have gone up. Delinquencies have risen to normal levels. So I wouldn't say that it's across the board great stuff. I would say that the ability to keep spending is probably there for a little while longer. All right. Mike Santoli, thank you. Up next, the CEO of Global Foundries with his read on chip demand and the role semis have played in

U.S.-China relations and more. Welcome back to Overtime. Chips have been a flashpoint this year among geopolitical tensions between the U.S. and China, with the Biden administration implementing new chip export bans as it moves to stand up more semiconductor capability domestically as well. For his take on the intersection of chips and geopolitics, outlook on the semi-market more broadly, let's bring in our next guest, Thomas Caulfield, CEO of Global Foundries. He joins me right here at the Reagan National Defense Forum. It's great to have you on. Thanks for having me. So I do want to start right there with this notion of the semi-market becoming this lightning rod for geopolitical

tensions. It draws into the focus the fact that you have this accreditation as a trusted foundry. What does that enable, especially in this world where you do see more of these tensions? Well, let's first talk about the role of semiconductors and then our role in that. I think what you're seeing is the confluence of how important semiconductors are to economic security, supply chain security, and national security. I think they've always been there, but the geopolitical temperature has raised the concern of that. But independent of geopolitical, any business that runs always thinks about single points of failure. And having a high concentration of such a critical capability in one country in the world, independent of geopolitical,

it could be geological reasons, having that level of concentration, single point of failure is not good. It's about supply chain resiliency is important. Now that builds into we need to make it resilient, which means broadening out that supply base, but also the providence, understanding and knowing where that technology is made so you can trust it. And that's where I think Global Foundries really comes into the forefront. We operate on three continents, Singapore, U.S., and Germany.

In the U.S., we're a trusted foundry, so we're charged and honored to deliver the most important and sensitive semiconductors for the U.S. military. In Singapore, our customers trust us to not only convert their designs to great products, but also to do it in a very trusted way, protecting their IP and ensuring that we have the trust to deliver to their technologies, and similar in Germany. So I think that's how it all comes together. And so what does that mean in terms of demand for using your manufacturing capability for the types of chips that you can make more broadly?

So I think what's happening now is the recognition of resiliency you'll first see is a bunch of other semiconductor companies that we compete with are looking to expand their global footprint because it's becoming important. When we were born as the world's first global footprint for manufacturing the world didn't care as much as they do now. So the first thing you'll see is other companies are going to spend the better part of the next decade creating what we already have. We're seeing companies around the world wanting to build some of that resiliency in and coming to GF to offset some of the concentration they have.

But this is not something that happens overnight. It took three decades to create this dynamic we have today, this concentration. It's going to take decades to get this this dynamic we have today this concentration it's going to take you know decades to get it rebalanced and our job at gf is to make sure we position the company to take it take that opportunity and deliver to our customers and leverage what we spent a lot of money to create hey tom uh it's john fort good to see you i'm wondering about demand we got the warning from jay bill this week on lower demand. I imagine that hits communications infrastructure where you have customers.

But also consumer spending this week has been surprisingly strong, which could boost some things and lower end electronics. How do you expect it to balance out? I think the view we have is because we play in so many end markets, we could see the different dynamics playing out. I think it's so for us, let's talk start with anything that's consumer led. It was good to see Black Friday and Cyber Monday deliver 10 plus billion dollars worth of of of commerce. That's great.

But is it going to sustain every day leading up to the holidays, or is everybody done? Consumer spending, is it going to recover in China? That's a big market, so we need that market to come. Automotive still looks strong. It's a supply chain that is finally getting caught up with demand and supply, and it looks strong going into 2024. I think you're right. right infrastructure and communication infrastructure is still a story to be written it's still on the low end of things and I think one of the few bright spots is in AI driven data centers and I think that demand will continue to stay strong well into 2024. So that's kind of how I handicap our industry. I think for all of us, it's too early to call 2024. There's, I think, a wide range of outcomes. But I think you need to look for is inflation coming under control, so interest rates to come back down and give consumers the confidence and the wherewithal to get spending on

goods again. And that will only happen when they have more confidence in their disposable income and their financial position. I mean, there has been a lot of focus on inventory levels across different end markets and what that's meant for some of these more broadly. Your last earnings call, you said the economy remains uncertain, but that you're cutting inventory levels. How is that going? Yeah, we entered the year as one of the many companies that thought we would have a down in the first half, a strong rebound in the second half. Well, it's clear to say no one's seeing that strong in the second half.

And a lot of it's because the inventories haven't burned off like we thought. I think if I had to call it from what we see now in retrospect, at best, the third quarter represented a peak of inventories and certainly the indication that it's going to start to be worked out. But they're peaking at really historical rates of peaking. So you have to think about at least a quarter or so to burn that inventory off before we get to more of a normalization. Okay.

And of course, we know aerospace and defense is a growth market for you as well, part of the reason that you are here with me at Reagan. Thomas Caulfield of Global Foundries, thanks for joining me here exclusively. Thanks for having me. Such a great deep view. John, I'll send it back to you. Yeah, such a great deep view that you're getting from him there, Morgan. Meanwhile, the UN Climate Change Summit getting underway in Dubai,

some big money deals already being made related to clean energy. We're going to preview what to watch with CNBC's Diana Olick ahead of her trip to the summit. We'll be right back. Welcome back. The COP 28 climate change summit is underway in Dubai. CNBC's Diana Olick joins us now with a look at the trillions of dollars at stake in this clean energy transition. Diana. Yeah, John, representatives from nearly 200 governments are at COP trying to ramp up their response to climate change. And that just means more money. So that's why CEOs and other executives

from large corporations, big banks, investment funds, VCs, they're there, too, trying to get in on that cash opportunities in the clean energy transition, infrastructure, climate tech and resilience. Now, just this morning, Bill Gates's breakthrough energy announced at the COP an investment of just over a quarter of a billion dollars with the European Investment Bank for its first two European projects. One of those involves Orsted, a Danish clean energy company, making clean shipping fuel. Also this morning, the COP leadership, the UAE, launched a new $30 billion climate-focused investment vehicle, which will be the world's largest private investment fund for climate. It aims to mobilize $250 billion globally by 2030. So, John, we're just following the money. All right. We're going to be following

you and all of your amazing coverage next week. Diana Olick, thank you. Some big names on the earnings calendar next week as well, along with an economic report that all of Wall Street will be watching. We're going to break down the catalysts to mark on your calendar. That's next. Panera has confidentially filed for an IPO, according to the Financial Times. I happened to speak with Panera founder Ron Shaik last week, no longer affiliated with the company, about the controversial technology investment that set the company up for success a decade ago. We spent $150, $200 million on technology. I had activists attacking me. I had the world challenging me. Do we really need to invest in digital? Do we really need to do all of this? I can remember I'd

be waking up at 4 a.m. every night. And the truth of the matter is, you know, in retrospect, it turned out everybody's always brilliant. You know, the stock, the company took off, the stock took off. Our comps were strong. Our EBITDA was was up 35 percent in 17. It led to a sale of the company, the largest U.S. restaurant deal ever done at the second highest among the highest multiples. Morgan, maybe we'll see if Panera can recapture that magic in the public market in 2024. Maybe an AI play. Who knows? Yeah, going to be one to watch of maybe many. We'll see as we start to get some of these filings.

The S&P 500, meantime, hitting a 52-week closing high today. And there is a lot more action coming next week. So you've got reads on the consumer with Dollar General, Toll Brothers, and Campbell Soup, plus a check on the chips when Broadcom reports. We're also going to hear from C3 AI on Wednesday. That stock making a comeback in the past few weeks. CEO Tom Siebel is going to join us Wednesday in an exclusive interview to discuss that. Speaking of stocks that have big moves tied to AI this year, John, Plus, the November jobs is out Friday, and economists expect nearly 200,000 jobs added and a 3.9% unemployment. And we've got more interviews from here

at the Reagan National Defense Forum tonight, too. On last call, CEO of GE, Larry Culp, is going to join me exclusively. And on Monday, on overtime, Commerce Secretary Gina Raimondo as well. So going to keep it busy here, John. Yeah, looking forward to that. And that'll do it for Overtime.