Closing Bell - Closing Bell Overtime: Deputy Treasury Wally Adeyemo On Blockbuster Jobs Report; Meta Bear Laura Martin On Company’s Strong Earnings 2/2/24

Episode Date: February 2, 2024

Deputy Treasury Secretary Wally Adeyemo talks the January jobs report that blew past expectations. Another record close for the S&P 500 and Dow, notching their fourth straight positive week. Unlimited Funds’ Bob Elliott and FS Investments’ Lara Rhame break down the latest earnings and today’s blockbuster jobs report. Needham senior analyst Laura Martin, a Meta bear, reacts to the tech giant’s standout earnings report. Coursera CEO on the latest quarter. 

Big tech, big gains as the major averages finish higher on the day and for the week. We've got new records for the S&P, the Dow, and the Nasdaq 100. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, Meta giving communication services a huge boost, closing up more than 4.5% on that sector. The social media giant closing at a record after a huge earnings beat and announcing its first ever dividend. But Needham's Laura Martin remains one of the few analysts on the street with a sell rating, ouch, on the stock. Coming up,

she's going to defend that call. Yes. Plus, Deputy Treasury Secretary Wale Ademo joins us exclusively to discuss the better than expected jobs report, inflation and so much more. But first, let's get straight to the market action. Joining us now is Unlimited Funds CEO and CIO Bob Elliott and FS Investments Chief U.S. Economist Laura Rehm. Guys, happy Friday. Bob, with a jobs report this strong and the Fed already inclined not to cut in March, it doesn't seem like there's anything to throw them off of that game right now. The convention of wisdom, I guess, would be that it's bad for bonds. But is it really?

Like, if you're holding for more than a couple weeks, a couple months, we sort of know where the direction overall is most likely to go. Well, that's right. But the question is, what's priced into the market? And we still we've moved from December where we had almost seven rate cuts over the course of 24 priced in. Now we're closer to five, which is, you know, movement in terms of pricing out the significant rate cuts that had been priced in. But remember, the Fed was at three in their dot plot in an environment where the unemployment rate goes to 4.1 percent. And the unemployment rate keeps surprising by staying right in that sort of three and a half

to four range. And we may not even get three cuts if unemployment doesn't rise as was expected by the Fed. OK, so how defensive on the equity side can you afford to be even in a market where Meta's up 20% after earnings and initiates a dividend? You know, you bring up the important point, right? Can we close this gap between what markets are expecting, so many rate cuts,

and what the Fed has signaled without really getting a ding on the equities? As long as the data stayed this strong, it looks like we can kind of have our cake and eat it too. That said, I think, you know, beyond the one, two, three days, when you look out a year, valuations this high, you need to add something else into the equity portfolio besides just relying on those traditional equities. All right. So what are you, how are you thinking about that? Maybe bonds are not the place to go, Bob. Maybe equity is looking more attractive right now. Where would you be putting money to work,

especially in a day where we're talking about record highs for the major averages? But the Russell 2000 didn't have a great week. Regional banks back in focus again. Right. And I think what that is, is you're starting to get the bears are trying to pick out the corners of the market that they think are going to underperform on a forward looking basis. And the reality is that if we're going to have the strength of growth that we see right now with the Fed, while maybe not cutting nearly as much as would be desired, still in that easier monetary policy stance, and a number of those areas like the regional banks, like the Russell 2K, the pricing, the valuation there looks pretty good. The idea that we might get a rotation into those areas of the market here in 24 looks pretty compelling, given the overall growth dynamics that we're seeing.

Yeah. Lara, I mean, you do see the futures market, the Fed funds futures market, repricing based off of what we heard from Powell. Of course, everybody's going to be focused on that 60 Minutes interview that will be done with the Fed chair this weekend as well. But I guess what does that tell us about U.S. versus, say, international? Because we expect the U.S. to start cutting at some point this year. But other markets, it may take a little bit longer. So what does that mean in terms of

that mix, especially when you are talking about equities more broadly? I'm going to say something that probably will surprise a lot of viewers, but I think it's time to double down on the U.S. economy. The divergence, U.S. looking expensive valuation-wise versus the rest of the world, just because it's cheap doesn't mean you should jump in and buy it. I think there's a lot of room to harvest growth in the U.S. It may be a little more challenging to do that because public equities are expensive. So you're looking now at private equity, middle market lending. You know, I could go on about other ways to harvest U.S. growth, but this is where we're seeing the productivity gains today. And I think that's going to continue

for the rest of the year. Bob, stocks or gold? In this sort of environment, stocks are the way to go. You've got that strong growth, that momentum in the economy. You know, the easing, the slight shift to easing is going to be more beneficial for stocks than it is going to be for gold, given it's not entirely, given that the pricing is the way that it is. You're probably going to get a little disappointment on the overall easing. And so that really, while stocks are, you know, pushing new highs, this is one of those environments where the momentum in the macro economyconomy is so strong it can power through

and really drive stocks higher and frankly, you know, meaningfully offset what you might see as losses in other assets across the portfolio. Okay, Bob and Lara, thanks for joining us. Well, for more on the jobs report specifically and the economy, let's bring in our next guest. Deputy Treasury Secretary Wally Adeyemo joins us now. It's so great to have you on the program. Welcome. Well, thanks for having me. It's great to be here. So we did have this hot jobs report. It actually triggered a sell-off in treasuries today with a 10-year yield back above 4 percent. Many more jobs added than expected. A jump in wage growth as well. Why is this good news at a time when the Fed is still fighting inflation?

It's the most important thing for us is to look at treadmills and not to look at any individual jobs report. And what we've seen is that over the last three months, we've seen more than 250,000 jobs created each month. But one of the things that's also important is when you look at supply and the supply of labor has improved. Since 2021, you've seen 2 percent improvement in labor force participation amongst prime age workers. And that's why we've been able to see an economy where we're creating more jobs. The economy continues to grow. And over the last six months, inflation has been down at 2 percent. Yeah, we did see the strong headline numbers, but lies some softening in the report, arguably, specifically hours worked. We've seen some other mixed macro data as well. And then,

of course, concerns just this week about the state of the regional banks, given the New York Community Bank earnings report that sparked a sell-off. I wonder how you would assess that trajectory of economic growth this year, and perhaps just as importantly, until the Fed begins cutting rates, whenever that happens in this cycle, what it means to have rates higher for longer for the banking system? The way I would evaluate the U.S. economy is that it remains the strongest in the world. Just a week ago, I was traveling to Germany, to Italy, and to Japan, and having a chance to meet with our closest allies in some of the world's biggest economies.

And without a doubt, the U.S. economy is the strongest. We have the strongest growth. We're seeing inflation come down quickly. We're creating jobs. And we have a great deal of momentum. We, of course, face headwinds, many of them from abroad. But because of the policy choices we've made and the things that the businesses and the CEOs who watch our show have done,

our companies are better prepared for that than companies anywhere in the world. And our markets are demonstrating that. You look at records highs in terms of profits and our stock markets, and it reflects an economy that's strong and will remain strong for 2024. Wally, strong jobs report, stocks are higher, markets up. But why does it still feel like it's so tough for the working class? When I look through my social feed, I'm on Facebook because, you know, I'm middle-aged. They're talking about the hike in insurance rates that they're getting. Everybody's getting notices of these days. They're not cheering a strong jobs report.

So I think one of the things we always have to remind ourselves is that we're coming out of an incredibly tough period with the pandemic and Russia's invasion of Ukraine which drove gas prices higher but today gas prices are $1.90 lower than they were at the peak because of things like the president's decision to release oil from the Sheshire Petroleum Reserve and ultimately the thing that we've done the thing the president's been focused on is making progress for the American people so that over time we continue to see the economy improve and lives improve for Americans. And today if you own a house, your house is worth more than it was before the pandemic. If you are a senior who's going out to buy insulin for your diabetes, you're going to pay $35 versus what you paid before the passage

of the legislation the President advocated for. We're going to continue making that progress over time and we know that in America, because of the hard work of the American people and companies, we're going to be better positioned to make that progress. One of the stats that I think is the most important is when you look at small business starts. Over the course of the last three years, 16 million Americans have made the decision to start small businesses, to take that risk because they see opportunity in America. And our goal is going to be to make sure that we provide them with the economic momentum that will allow those small businesses to eventually become the big businesses

we're talking about in the stock market. Yeah, you mentioned small businesses, and we actually got some data from Intuit. Monthly, they come out with info on the smallest businesses. It turns out those with fewer than nine employees actually cut in the last month, employees over the last month. So it's interesting. There's this disconnect, it seems, between what's happening with the big and the rich, the metas of the world, and then the mom and pops, yes? So I would say that what we're seeing is that more than at any period,

there's been investments made in those mom and pop small businesses. And I think what I would say is that you look at the momentum for small businesses, and we've created more of those one- to nine-person small businesses over the last three years than at any point in history. You're right that one of the things we have to focus on is making sure that they have the opportunities to grow, and that's why the president's been focused on doing things like providing additional capital to those businesses through a program that we call the State Small Business Credit

Initiative and through the CDFIs. And fundamentally by providing that credit we're going to put them in a better position to get access to the loans they need to grow. But every small business I talk to, the second thing they tell me is they need customers. And we're focused in the federal government on being a customer to more small businesses than any time in history, and calling on big businesses to do that as well, because for every bank out there, every big business, ultimately they need a number of small businesses to be a part of that supply chain.

And we're encouraged by the fact that more Americans over the last three years have decided to start small businesses than any point in history. And we want to make sure that we support that ecosystem going forward. Yeah, I do want to shift gears a little bit. More sanctions on Iran announced today at a time when the Middle East tensions are flaring. You've got Iranian hacks. You've got Houthi attacks on ships. You've got militants carrying out that are backed by Iran, carrying out a drone strike in Jordan that killed Americans last weekend. What do sanctions enable, and how effective will they actually be? So I think you're talking about one of the headwinds that I mentioned earlier that

is a real headwind for the global economy. But because of the efforts that we've put in in terms of policy, but what our businesses are doing, what the American people are doing, our economy is better able to withstand those headwinds. But in addition to that, we're taking actions to hold Iran and their proxies accountable by putting in place sanctions. And fundamentally what these sanctions do is they cut them out from access to the thing they need, which is money. Money to buy the weapons that they're using to come after our interest and to put our national security at risk. And our message clearly to those who seek to do that

is that we're going to continue to act, and we're not going to act alone. One of the things that I've talked to our allies and partners about and the secretary and president have been focused on is making sure that we act with our allies and partners in the region but around the world to hold those actors accountable. And we're going to continue to do that

in order to make sure they have less access to money to cause the damage to those in the region and to our interest and to our partners interests as well. All right. Wally Adeyemo, the deputy treasury secretary. Thank you. Thanks for having me. Now let's get back to Mike Santoli for his first dashboard. Mike. Yeah, John, let's take a look at how this run to a new record by the S&P 500 looks on a one-year scale. You'll see that it really tacked on this little last spurt, obviously, after that brief gut check around the Fed meeting up toward the 5,000 mark. Also wanted to point out, one year ago, we actually had a little bit of a short-term peak. February 2nd of last year, we had a huge rally in January. It was led by

small caps and cyclicals and low-quality stocks and heavily shorted stocks, very different from the environment right now. But we also got a really hot jobs number. People were afraid we were going to have an overheating economy. Remember, the Fed was going to have to go to 6%. That caused a huge spike in bond yields, and that created that decline. That doesn't look like much right now, but it was exacerbated by SVB. You ended up getting a 10 percent pullback and then, of course, recover from there. One thing I'll also mention is this kind of trend line that goes from just before the October low. Been watching it for a while. If you look at this band, it takes you to like 50 50 or just a bit above the 5000 mark on the S&P. And then it would seem to be maybe getting a little bit stretched. It

seems to be maybe a destination. But keep in mind the possibility for any kind of routine pullback, anything above forty eight hundred, though, if it just pulls back to there, then it's very much intact. You're not undoing that spurt. We got higher in the first part of January. Now, Meta's dividend initiation interesting for many, many reasons. We've had on all day. It doesn't have a high yield. It's only about 0.4 percent dividend yield, given what the stock did today. But here's how dividend growth, this would be lower dividend yields. But those with companies with a track record of growing the dividend over time has really outperformed. This goes back a decade. The high dividend stocks, which is the select dividend, that's basically relatively rich

dividend yields. And that's been a norm over the course of market history. You'd rather have companies that have enough growth to have profits expand, pay more dividends over time, as opposed to ones with a high current yield. And by the way, this performance includes dividends reinvested. So in other words, it's not just the prices of those stocks. So presumably, metal will go into that dividend growth category. Yeah, presumably, I guess one investing would hope. Now, Q4 followed the script as far as what the markets tended to do, not always do, but tend to do, that rally that we saw. But now we're done with January. We're just starting February. What tends to happen in Q1 that you're watching in the charts? Yeah, often maybe it's sort of in the back half of February you do get a turbulent period,

maybe a little bit of give back and uptick in volatility. At some point during the first quarter, that also is a pattern in election years if you care about that. It's not a big sample size. But a lot of the stuff that says, you know, if this happened, then that tends to happen, still point toward higher prices. The quality of the fourth quarter rally, the fact that January was up, all of it is sort of lining up. Nothing is a guarantee.

But you really just shouldn't be surprised if you have a little bit of slippage in the indexes as February goes on. It would be pretty routine. Okay. A little bit of context there. Mike Santoli will see you later in the show. Up next, much more on Meta, which was by far the best performer in the S&P 500 after much stronger than expected earnings. Look at that. Stock finished up 20% today, but Needham's Laura Martin is still maintaining her sell rating on the stock despite the bullish news. She explains why

on the other side of this break. Overtime, back in two. Welcome back. Intel falling nearly 2% today on a Wall Street Journal story, pointing out the company's $20 billion Ohio chip manufacturing facility will be completed later than the company targeted in 2022. I spoke to CEO Pat Gelsinger last week, touched base again with Intel today. Here's what they're saying about this. They realized early in the construction process that the timeline was too ambitious, but they say they never updated the public on pushing out the target completion date.

So based on that, Intel says the construction project is now advancing on pace with its expectations. And that is, Morgan, what Pat told me a week ago. It's fascinating. It's also not surprising, given the magnitude and nature of a development site like this. These things always tend to take longer than initially anticipated. What he did say, labor-wise, all of that capital availability, they're on track. OK. Well, Metashare is, meantime, hitting an all-time high today, jumping 20 percent. Huge move after the company reported a tripling in profit for Q4 and announced that they would pay investors a quarterly dividend

for the first time. Despite this, our next guest has a given the stock an underperformed rating. Here to discuss is Laura Martin, senior analyst at Needham & Co. Laura, it's always great to have you on the show. And that is exactly where I'm starting this conversation with you. Why do you continue to be underweight on Meta? Right. So what we're looking for in 2024 is three things that we think are not currently invested in the consensus estimates. One is capital spending rising because he's going to do, he's going to try to compete with the big, large language models like Amazon's AWS, Bedrock and Google's and OpenShap. So then also his headcount's down 22%,

and he said he's going to start hiring people again. So we're going to get higher people costs as he continues to fund the metaverse. He said his Reality Labs loss is going to go from a loss of $16 billion in 2023 to material or higher. We're using a $22 billion loss, so that's a big cost. And then finally, on the revenue side, they said on the call that China advertisers added 500 basis points to their growth, so they would have reported 11 percent growth in 23 instead of 16 percent growth for the full year. They're about to anniversary those tough comps.

So I think it slows revenue growth next year, and I just don't think the estimates really capture that. I think they're too optimistic on revenue growth for 24 and too optimistic on cost growth. Okay. So basically, you think that this was a peak report in terms of some of those key financial metrics, it sounds like. But they did initiate this dividend, and they also just rolled out another big buyback. The dividend specifically is going to expand the investor base. No, create more demand. I agree. But I think the other thing it tells you is they realize the Congress will not let them buy anything. There is no other use of cash other than building their businesses and hiring people to build out the metaverse and generative AI. But

they're never going to be able to be able to buy anything because Congress just won't let them, the regulatory agents. So that's sort of bad. Like you and I would prefer to be buying companies that can buy fast startups to jumpstart there instead of building everything from inside. But Laura, Laura, you got to admit, it would have been better if you had a buy on it and just went to an underperformed today, right? Yep, absolutely. Absolutely the wrong stock call today. Absolutely true. So what did you read wrong about Meta on the way up, right? That you learned from that you think now you're right, that it's going to be headed on the way down. Right. So, I mean, I think what happened was he cut 25 percent of his total sale

at employee base. I actually didn't think that was possible in a human capital based business where morale is such an important indicator of who you attract next. I really just didn't think that was possible in a human capital-based business where morale is such an important indicator of who you attract next. I really just didn't think you could cut that much, 25% of your headcount. And that's what he did. And the other thing I really like about this CEO, he's the CEO I've covered that's really willing to pivot on a dime and say, I made a mistake. And he said that last night on the call. He goes, I thought we could do a specific large language model. That's wrong. We got to do a big one. We're pivoting. And that means a lot more costs and a lot more capex. But I really think it's the right long term decision. And I

think he's learned that over the last year. So I think he's good at I think he's good at pivoting to what the market needs when he's proven wrong. Yeah. You've also said that Google, that Alphabet is your top pick. I wonder in a week where we saw that stock actually sell off, finish the week down about six and a half percent after investors really sold, in part because of what we're seeing is some misses or some softer than expected results around the advertising, whether you stick with that call, too. Yeah, yeah, definitely. Really like Google because of its strategic position. First, it's got cloud. Then it's got three large language models that are proprietary. Its cloud business has a $20 billion backlog, had over-delivered both profits and revenue compared

to consensus. And I just think what's about to happen over the next three years is we're going to see all these generative AI applications essentially redefine corporate winners and losers in the American economy. And the early adapters of generative AI are Google, who mentioned generative AI or AI 65 times, Meta mentioned it 50 times, and Amazon 25 times. These guys that are cloud providers and building large language models are going to be the backbone of, like, surviving American companies over the next decade. Laura, Apple ended the week down after earnings, but it also released the Vision Pro. Did it deserve to be down? Yeah, it did.

I mean, first of all, the prepared remarks, not a single mention of AI or generative AI. They said they'd get to it later. And it sort of feels like this annual, you know, sort of release cycle that Amazon, I'm sorry, that Apple has in its hardware feels really sort of out of proportion, given that Meta and Google and Amazon are all saying, hey, we have a dozen products that use generative AI today. And they're really interesting products when they tell you what the use cases are they're finding for these. Feels like the pace of innovation driven by this disruptive technology called generative AI is going to be really fast and that annual

updates feel a little too slow in the competitive environment to us. Okay. Laura Martin, we covered a lot there. Thanks for joining us. My pleasure. Breaking news out of Washington. Eamon Jabbers has the details. Eamon. Morgan, a defense official confirms to NBC News that the U.S. military has begun strikes on targets in Iraq and Syria. We don't have any information as of right now as to which targets are being hit and how many strikes we're talking about here. But these attacks are now in response to the attack that we saw on Monday in which three U.S. service members were killed at a U.S. airbase in Jordan. Now, the U.S. has talked about engaging

in retaliatory strikes all week. We now see that those strikes have begun. And it comes, Morgan, on a day in which President Biden oversaw the dignified transfer of the bodies of those three U.S. service members at Dover Air Force Base here in the United States. A very mournful scene with the president of the United States greeting those bodies as they arrived back on U.S. soil today at a time when the president must have known that he was imminently going to begin these strikes that we can now report, according to a U.S. defense official, that strikes have begun in Iraq and in Syria. Morgan, more information as we have it.

OK, we'll continue to monitor that situation. Eamon Javers, thank you for bringing us the latest. Of course, John, what's going to be key here is you talk about strikes. It's something that the deputy defense secretary discussed with me, Kathleen Hicks, earlier this week, but also that balance of how do you retaliate but not necessarily embroil the U.S. more directly into a conflict in the region. Yeah, it's a tightrope walk. All right. Well, more overtime after this break. Welcome back to Overtime. Education tech company Coursera reporting earnings yesterday after the bell beating on both lines, revenue up 19% year over year.

Guidance was mixed. It's an enterprise and degrees segment facing some pressure from tightening budgets and this strong labor market that we got the numbers on this morning. Stocks on initial pop. The move turned negative in today's session. Let's bring in Coursera's CEO, Jeff Maggiancalda. Jeff, good to see you. So give me the sense of trajectory here. You were last on talking about executive courses for AI, but for the bulk of the students in Coursera and the universities who are potentially signing on to the platform, how do things look? Things are looking good. I think that we, as you said, strong growth in 2023. We finished the year, revenue up 21%, Q4 year on year up 19%. We did for the first time in 12 years post a positive adjusted EBITDA quarter on profitability in Q4. So that looks great.

Particular strength in the consumer segment, as you're saying. I think people are starting to realize that there's a lot of change afoot with generative AI and other things that are happening in the labor market. And if they can get access to these professional certificates, which are driving our consumer segment, it really helps advance careers in a pretty dynamic labor market. Jeff, how are you seeing the still tight but loosening labor market affect corporate demand for training and maybe even for retraining? Because even though the job market is relatively strong, there's still the sense that some businesses have workers in areas where perhaps they need fewer and need workers in areas where they don't have the trained people.

Yeah, you put your finger on it. It's going to be a real mix. I think companies are definitely thinking we're going to have to reskill the employees who are with us today and will be with us in the future. Many companies, I think, are anticipating, like Laura said on your last segment, that generative AI will impact a lot of jobs. What we're excited to do is be able to serve companies who need to reskill people with the generative AI academy, like how do you do your job differently? And then, frankly, for people who need to transition into new careers, a lot of education is going to go along with that. So we do think that generative AI is going to create a real demand for skilling and training from institutionals and individuals as well. Are you already seeing that take place?

There's been a lot of talk about the potential disruption and displacement of the labor market as gen AI rolls out in a bigger, more meaningful way? Is it already happening? Are you already seeing it in your numbers? I think we're starting to see it a bit in our consumer segment. We had one enrollment per minute in generative AI content on Coursera. The enrollments in generative AI content in January of this year are four and a half times what they were in June of 2023. But, you know, when we hear our companies and you look at a lot of the reports that are out there, I said last night on the call, I kind of see this in phases. Phase one is kind of conversation. Everyone's talking about ChatGPT. Phase two is experimentation, a little tire-kicking, people feeling good if they're doing something. But I think the next phase is going to be

separation. I think the leaders who really understand how to take advantage of this for better value for customers and for productivity for the team, they're going to separate. And then that's going to create a scramble for other companies to try to catch up. Yeah, I think we're going to talk more about that later in the show. But I want to go back to the positive EBITDA. That's a big deal. But under the covers of that, how are you managing costs during this period when it comes to hiring, when it comes to percentage going to SG&A, and particularly marketing? Because it seems like you might be growing your spend there a bit. Yeah, we're spending more dollars on marketing, but we're seeing, especially on these professional

certificates, pretty good efficiency on the spend. So the growth that we're creating from that spend is more than offsetting the spend. So we're getting good leverage on the marketing dollars. I think that keeps us a percentage of revenue. It keeps our paid marketing look pretty good, looking pretty good. We're getting good leverage on GNA, as you'd expect. And on R&D, we're seeing increasing leverage. I mean, we are a company mostly delivering low marginal cost services with technology and content. So we expected to reach some scale where we become profitable and start generating good free cash flow. And now we're at that point. And as we guided towards 2024, we're looking for positive adjusted EBITDA and more than that amount of free cash flow in 2024.

All right. Jeff Madren called the CEO of Coursera. Thanks for joining us on Overtime. Thanks for having me. And by the way, Coursera was once a CNBC Disruptor 50 company before it was public. And CNBC is now accepting nominations for the 12th annual list of private venture-backed companies. To learn more, you can scan that QR code on your screen or go to CNBC.com slash disruptors. Up next, Mike Santoli looks at whether the jobs report jump in average hourly earnings could impact the Fed's interest rate strategy. And if you love the show. Who doesn't love the show? You want even more overtime.

We've got a QR code for you. Like multiple. Just keep your phone out on camera. You might as well. You can follow us on LinkedIn using that. We'll post exclusive content. Overtime will be right back. Welcome back to Overtime. This morning, we got another blowout jobs report proving once again the strength in the labor market. Wage growth blew past expectations, but this is not a cause for concern for Mike Santoli. And he is back to tell us why.

Are you taking a page from Powell and some of the commentary we got from him earlier this week or what? Well, not so much specifically from what Powell had to say, although just the sort of contextualizing of the data. Morgan, I should be clear. I always find cause for concern, but sometimes I can I can actually get around it with a few more numbers. So here's what this is. The wage growth number that did get a lot of attention as potentially being inflationary, if it were to continue, is average hourly earnings. Now, part of that came from a decline in hours worked in January. So therefore, same amount of money going out, fewer hours, higher average hourly earnings growth. This encapsulates the total payroll outlay of the private sector.

So it's how many jobs were at or how many total jobs are there, how many hours worked, average hourly earnings. And this is still kind of heading in the right direction. The latest reading is a year over year increase of four point seven percent. Now, that's still pretty elevated. But look, it's coming down pretty steadily and it's back in the range pretty much of where we spent a lot of time before the pandemic. Remember, wage wages can often private sector compensation can often grow faster than broad inflation. Productivity growth gets in there and helps out. So for this reason, I feel like we can look a little bit past that element of this jobs report. And by the way, the seasonal adjustments might have goosed the overall headline job growth number. So, you know, we'll be able to see what the longer term trend is soon. But

at this point, no real reason for alarm. OK, I think you just touched on it, but I was going to ask about, you know, the decline we did see in hours worked and whether there was a seasonal aspect to it or there could be some wonkiness in this report, especially given how big and outsized some of these numbers were for a typical January. Yeah, I mean, in terms of the hours where people are talking about weather, but then Goldman Sachs is saying maybe it was so cold in parts of the country that job growth could even have been stronger. Another soft spot folks might be highlighting is part-time work was a big percentage in the household survey of some of the gains. So it's fewer full-time a as a proportion of the whole. So you can always, I think, sift through these these reports and say, you know, there is some trend work that we have to be careful as and continue. And and maybe the Fed's going to be attentive to that. But there's time.

You know, we have another couple of jobs reports or at least one more before the March meeting. And then, of course, a few more before there is a likelihood of a change in interest rate policy. All right, Mike. Thank you. All right. See you soon. All right. Up next, billionaire investor Robert Smith on which category of stocks could see the next AI breakout and timeout when overtime returns. Welcome back to overtime. Whether you're buying a stock or starting a company, risk-taking is an important ingredient in success. Today, John takes time out with an investor who's betting billions, literal billions, on AI. Yeah. Robert Smith is the billionaire founder and CEO of Vista Equity Partners,

one of the largest private equity firms. He specializes in enterprise software, which is top of mind this week after reports from Amazon last night, Microsoft Tuesday. Now, today, Smith holds the distinction of being the wealthiest African-American, period. But he came from middle-class roots in Colorado, and that made his entrepreneurial dreams hard for some family members to understand. When I was working at a Fortune 500 company and wanted to start it on my own, my grandfather thought I'd lost my mind. He's like, how could you leave such a great place with such job security? And, you know, you'll be taken care

of for life. But, you know, you got to realize he was, you know, born in 1915 and, you know, went through the depression with, you know, eight siblings and having a stable job with a corporation that wasn't going to go out of business anytime soon, or at least a period of time that you were there, was the pinnacle of success. But I had the good fortune of having an aperture open much wider through the experiences that I had to understand the importance of building businesses and entrepreneurship and, you know, the fact that you could bring a lot more value back to your community, running a business and hiring people and, you know, delivering value in different ways.

Today, Vista's portfolio includes more than 80 companies. In the last 16 months, Smith has taken four private for just shy of $20 billion. And the biggest of those, Avalara is using software to simplify business tax and tariff compliance and now enhancing that with artificial intelligence. This is one of those creates massive opportunity, right? The opportunity to be more efficient in this case, Avalara's case, ingesting tax code information, driving that into a product set so that you can install it more efficiently with your customer base so that you can get them up and running quicker with a higher degree of certainty that it is done correctly. So those are the small elements of how you ingest, which are things that we're doing, of course, at the company, that you can ingest massive amounts of data, run it through, call it targeted

LLM solution sets that then deliver customized solutions that can be installed pretty efficiently into our customer base. So the timeout takeaway, one of the most fascinating investor puzzles of 2024 and 2025 is going to be figuring out which AI hardware players still have more room to break out. I'll call out Supermicro, which you've gotten to know here on Overtime, now up 22 percent this week, up 7x over the past 12 months. But next is application software. And that's a lot of where Smith and Vista play. Who's the Supermicro of software

that's going to go from $6 billion to $32 billion market cap in 12 months is the question. Challenge accepted in terms of us digging through, combing through so many of these stocks and companies that we pay attention to and sometimes don't pay attention to on a daily basis to cover that story here on Overtime. Yeah, Coursera's got hopes, of course, Duolingo, et cetera. We'll keep looking. Yeah, I also thought his comments about, you know, as an entrepreneur and as a risk taker, I thought were really fascinating because it is when you're entrepreneurial, you're wired a little bit differently. I don't think we talk about that enough sometimes. For sure. Wow. Great stuff. Thanks. AI lobbying is taking off in Washington as lawmakers consider regulating the industry. It's not just tech companies trying

to shape legislation. We've got those details when Overtime returns. Welcome back to Overtime. Artificial intelligence regulation, a hot topic in Washington, and that's leading to what else? A boom in lobbying on behalf of the AI industry. Megan Casella looks at that explosive growth. Megan. That's right, John. We've been working with OpenSecrets to try to understand the size and the scale of the lobbying effort. And what we've seen in the data is that it's been a record year for lobbying on AI. OpenSecrets data shows us that more than 450 organizations registered with the government to lobby on AI in 2023 alone. And that's a 185%

jump from just the year before. And there's a big range of companies getting into the mix here. It's not just tech companies, but it's the big banks, it's the retailers, it's universities, insurance companies, everybody trying to have some say here. And a lot of the big names just launched their efforts for the first time in 2023 on AI specifically. That includes Apple, TikTok's parent company, ByteDance, Coca-Cola, Lockheed Martin, Nike. And now all of this comes as business is really trying to shape President Biden's new AI regulations. And today is the deadline for public comment on guidelines that will shape AI's safety and security. So we've been digging through some of the public comments filed to the government.

And one theme that we've been seeing from companies, including Salesforce, is this idea that a one sizesize-fits-all approach just won't work. They're asking the government to understand that regulation needs to take into account the complexity of AI ecosystems. Then we have the Chamber for Progress, for example, whose members include Google and Amazon. They're pushing the U.S. to be a leader in this space globally, asking the government to, quote, resist the urge to embrace the tech-skeptical vision that the EU has adopted. So clearly, there's a lot of money at play here and some sense of urgency as the race to embrace the tech skeptical vision that the EU has adopted. So clearly there's a lot of money at play here and some sense of urgency as the race to regulate AI barrels ahead. Morgan? I just think this whole thing is fascinating. We've certainly been covering it pretty closely here on Overtime, and it's been kind of painted as this almost two different camps that are emerging. Those that are really concerned about regulation actually

stymieing the innovation around AI and application around AI, and those who think it needs to be applied in a responsible manner, which kind of brings me to the Commerce Department, which I know has enlisted some VCs, for example, in that effort, even as Commerce is kind of overseeing some of this AI executive order push that we know is rolling out now, too. In terms of the lobbying dollars, any kind of clarity as to how much is going where and whether or whether it's evenly distributed at this point? It's difficult to break down the dollars themselves and to see what companies are focused on within the AI space. But what we do know from looking at the comments is that the themes that you touched on are exactly what companies have been talking about. They're really asking the government to find a balance here between not

over-regulating. They want to be able to compete, but they also don't want the government to sit back because they don't want to be subject, like Chamber for Progress was saying, to the regulations that the EU has already put forward. So they want to make sure that they are able to influence the regulations that are out there. They say that we recognize that this is a brand new area. This is like regulating the Internet for the first time. Now we're regulating AI for the first time. They recognize something has to be done. They don't want it to be too much.

So they want to make their voices heard. OK, Megan Casella, thanks for bringing us this. And welcome to Overtime. I think it's your first time on the show. All right. Well, earlier this week, I covered Andreessen Horowitz's American Dynamism Summit as the VC firm focuses on investing in companies advancing U.S. interests. General partner David Yulevich runs the American Dynamism Practice.

He's invested in a number of defense and aerospace startups, including Andral Industries, a name known to the show, and Apex Space. When it comes to the space economy specifically, he's focused on areas like satellite hardware, communications, space domain awareness. I asked him how he thinks about exit strategies, especially since the space-backed trend of past years hasn't necessarily been good for public investor sentiment in the sector. And more broadly, dealmaking has been challenged. Right now in this country, we have like a very chilled effect on M&A. So I think most entrepreneurs are not building to sell their company. They're building to build a longstanding, enduring company. We've seen with, you know, Amazon just bailed on their acquisition of iRobot,

Adobe bailed on their acquisition of Figma. So like, look, if you build a great company, nobody can buy you anymore is the current environment, whether it's in Europe or even in the U.S. And so I think companies now are just like, look, we've got to build a great company and be independent and either go public or stay private like SpaceX has and provide liquidity in other ways. SpaceX is actually, to my understanding, wrapping up a tender offer that was first reported in December. But Yulevich compares space to the new world, the once there is reliable travel to and from space, that it's going to open up a whole new economy. For the full discussion, check out Manifest Space wherever you get your podcasts. Fantastic. Sure will.

And meanwhile, Wall Street is gearing up for another huge week of earnings. And up next, a look at which stocks have earnings momentum heading into their reports when Overtime returns. Welcome back to Overtime. We have more earnings next week with roughly 20% of S&P 500 stocks reporting. CNBC Pro is pointing out which stocks have quote-unquote earnings momentum. But what exactly is that? Stocks must have at least eight upward earnings per share estimate revisions in the last three months. Their average EPS estimate has to be up

5% or more in three months and up 1% or more in six months. And finally, their average analyst price target should be up 10% or more in three months. Three stocks that fit that criteria are Vertex Pharmaceuticals. Those earnings are out on Monday. Uber, which is out on Wednesday, and Allstate, which reports on Thursday. For more information on those names and the other stocks with earnings momentum, you can go to cnbc.com slash pro. Got to be careful with that momentum, though, because Qualcomm had momentum, but maybe some of that is priced in. Okay, also looking ahead to next week. Mike Santoli's rubbing off on you, I think. But not literally. Sunday will mark 10 years since Satya Nadella was named CEO of Microsoft.

The company and the stock have come a long way over the last decade. And on Monday, we're going to have special coverage of this milestone, the key challenges that lie ahead for Nadella. So excited about this piece. Worked on on it, known him for a long time. Microsoft's maybe had some earnings momentum, but, you know, Supermicro, we mention it again, that they preannounced it's still up 22% this week. Yeah, it's pretty incredible. I mean, just to go back to Microsoft, though, we talk about Apple and Meta sort of joining that club as one of these big, high-flying, high-growth names that now has a dividend.

Microsoft's the other one. What does it do to Amazon and Alphabet, for example, in terms of maybe future? Dividend doesn't make you a dinosaur. All right. Well, that is going to do it for us here at Overtime.