Closing Bell - Closing Bell Overtime: Earnings Bonanza, Including Tesla, IBM, ServiceNow 10/23/24

Episode Date: October 23, 2024

A wild day of tech earnings, including from Tesla, IBM, Lam Research, ServiceNow, plus Las Vegas Sands and Mattel. High-profile analyst Dan Ives reacts to Tesla’s numbers and former board member Steve Westly gives a bigger picture take on where the EV-maker stands. Jon spoke with IBM CEO Arvind Krishna and ServiceNow CEO Bill McDermott before the earnings call and brings those comments to you.  

Well, that's the end of regulation. Curb line properties ringing the closing bell at the New York Stock Exchange. X trackers by DWS doing the honors of the NASDAQ. We've got higher yields, a pullback for mega cap tech stocks, dragging the major averages lower today. Big drops for Apple and the chips. But the focus now turns to an upcoming wave of earnings. 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. We've got a huge hour of results coming your way, headlined by Tesla, IBM, ServiceNow, and T-Mobile. Plus, we'll get numbers from Lamb Research, Las Vegas Sands, Mattel, Whirlpool, and many more. As we await those earnings, though, let's bring in Bespoke Investment Group co-founder Paul Hickey. Paul, great to have you on. You know, we're hot and heavy into the earnings season here.

Tesla is obviously the big headliner, but we have so many names we're going to be watching. How would you characterize what we've heard from the companies that reported so far, particularly on the day where the major averages are having their worst sell-off in a month and a half? Yeah, I mean, it's a rough day today, but you just have to put it in the perspective of what we've seen over the last six weeks. And part of this rally has been driven by the fact that the earnings results to start with the big banks were very strong and their stock price reactions were also positive. So I wouldn't read too much into it. In the end of the last show, we were talking about the, they were talking about the election and the election trade. And yes,

it is a much different environment now than going into the 2016 election. But it is, you know, you can't ignore the fact that we've seen a correlation between former presidents Trump's poll numbers and, or more specifically his odds, and the market's performance. And the sector performance coming into, since those odds bottomed in September, has been very similar to what we saw after the November 2016 election in terms of sector leadership, financials and industrials leading, consumer staples, and real estate lagging. So I think in that respect, you could be set up for the stage of disappointment once the election comes and

sell the news reaction. But I don't think it's going to be anything too bad. The overall market backdrop is very good in terms of breadth, earnings, the economy, and the Fed at the market's back. So I think one day, it's a rough day, but, you know, these days happen. Okay. Well, we've got our first earnings report to bring to you, and that is T-Mobile. So it is a beat on the top and bottom lines. T-Mobile coming in at $2.61 per share. That's versus $2.42 estimates from the street.

Revenues, as I mentioned, also better than expected, $20.16 billion. Total net customer additions of 1.6 million. That was much better than expectations. Postpaid net customer additions of 1.58 million, also much better than expected. Just to break it out here, postpaid phone net customer additions of 865,000. Companies saying this is the highest Q3 in a decade. That's versus high-speed internet net customer additions of 415,000. Also, postpaid phone churn of 0.86. This is apparently a record low for Q3. T-Mobile raising full-year guidance.

Postpaid net customer additions expected to be between 5.6 and 5.8 million dollars. That's an increase from the prior guidance of 5.4 to 5.8 million. That's an increase from the prior guidance of $5.4 to $5.7 million, raising the low end of core adjusted EBITDA guidance as well. And you can see shares of T-Mobile are popping on this report of 4 percent. Okay, so we want to bring in Mike Santoli to this conversation, too. And, Mike, the fact that T-Mobile having such a strong report here after we did get AT&T this morning and we saw some mixed results there in Verizon just a few days ago. How does it again, how does it speak to the haves and have nots that we're seeing across different industries right now?

Well, I mean, T-Mobile has been an absolute monster of a stock and the street, I think, has been starting to question, you know, can it actually get any better and justify, you know, what is a superior valuation versus the peers? And the numbers obviously have given encouragement to that. The actual average analyst price target is 220. So it's below what the stock is trading. It just shows you people aren't used to giving the pure kind of telco company this high evaluation. But everything is clicking for the company. We'll see if it can sustain this. The guidance raised definitely probably reassuring because I think

there has been some talk about just exactly whether the market share fight is going to intensify and maybe they've already gotten the low hanging fruit in terms of broadband. OK, I'm hearing that Tesla's results have also crossed. We'll get you those as soon as they're ready. Paul, I'm waiting to see the cross on IBM and ServiceNow as well, because it seems to me like there might be a little bit of a similar effect in software to what we saw in chips. There are some that are more AI-powered than others, and there was a very different distribution of stock reaction based on that. Yeah, I mean, both IBM and ServiceNow have been monsters, though, over the last year. IBM,

you're going to look for its software group of what those numbers come in. And, you know, talk about the have and have nots. Just going back to this T-Mobile. With today, the stock has traded higher from the open to close in 24 out of the last 25 trading days. That's insane. I've never seen that type of consistency where investors just can't get enough of the stock. And the stock opens and they bid it up every day. So that kind of intense strength for the stock, and it's up in after hours again today. It's just phenomenal. But IBM, it's come a long way. It still yields close to 3%, though. So the multiples expanded a lot over the last year, and they're going to report their fifth quarter of year-over-year sales growth,

which for a lot of companies, especially in the tech sector, is no big deal. But for IBM, it's going to be the first time they do it since 2012. So I think there's been a we're seeing we've seen a real turnaround in the company. And it's much more, you know, the dark days of, say, five years ago have gone behind where people were questioning the dividend. And now it's, you know, that's much more stable and still a decent yielder. OK, well, we've got those Tesla results to bring you, and Phil LeBeau has the numbers for us. Phil. Morgan, this is a solid beat on the bottom line for the third quarter for Tesla, earning 72 cents a share.

The estimate out on the street was for earnings of 58 cents a share. Revenue coming in just a little bit shy of expectations at $25.18 billion. The street was expecting $25.37 billion. We're just starting to dig through the numbers. We'll get you those auto gross margins, excluding the zero emission vehicle credits. But again, Tesla beating the street on the bottom line, earning $0.72 a share, $0.14 better than what the street was expecting. Guys, back to you. All right, Philip Bo, thank you. Getting a nice pop on Tesla on those results, up 6 percent initially in overtime. Mike Santoli, this is a stock, though, that, you know, it's not at highs, but it is a long way since the spring.

Yes. Well, it's been every which way. It obviously is a pretty big from from those August lows. And I do think it got a little bit, I was saying last hour, sort of pre-sold into the number a bit here. The gross margin, absolute headline gross margin, it looks like a clear beat. As Phil said, you've got to see the automotive X incentives. But it definitely is a beat, and people were braced for something a little bit worse. Top line, not so great. I think they're saying slight growth in vehicle sales for the coming year. So I think that's plus or minus about what the street was anticipating in terms of volumes.

Now, we've got another number of other companies earnings that are out. Control Room, remind me, we have Mattel. What else was at Las Vegas Sands is out as well. So we're getting a little back up there in the numbers. Lots of data crossing. Yeah, the floodgates are getting ready to open here. So Paul, I'm going to go back to you. We're probably going to interrupt you here as more of these results come ready. Tesla's now up almost 8 percent in after hours. We know Phil is going through what is a very dense every quarter report

here for Tesla. But in terms of what you've heard so far, your reaction? Yeah, I mean, so Tesla, it's been a rough run for the stock. Its last four quarters, it missed earnings numbers. So this beat is a shift in that. This quarter, historically, Q3 is their best quarter in terms of earnings, how the stock reacts. So that's not too much of a surprise. But yeah, we're going to want to wait to see what happens, what they talk about in the conference call going forward. But sentiment was so low towards the stock. It's the only one of these MAG7 stocks that is down on the year and has been performing poorly. So it doesn't take much when you have expectations so low for the stock to get a pop like this. All right. Speaking of a pop,

Las Vegas Sands earnings are out. Contessa Brewer has the numbers. Contessa. John, we're seeing bad luck hitting Las Vegas Sands hard with a miss on the top and the bottom lines. Earnings of 44 cents a share against expectations of 53 cents adjusted. Revenues 2.68 billion. The street was expecting 2.78 billion. And the company has announced low hold in Macau. That would be a $2 million impact there. And of course, there's ongoing disruption from construction at the Londoner. Visitation in the quarter still did not reach pre-pandemic levels for Macau. The bigger impact on the company here and on adjusted property EBITDA, which is the crucial earnings metric, is in Singapore, where low hold at Marina Bay Sands contributed a $78 million impact. LVS bought $450 million worth of stock in that quarter, and the board authorized another $2 billion in buybacks.

And it bought $44 million in Sands China Limited. That stock has been hit pretty hard. Plus, the company is announcing a 20 cent increase to the dividend for an annual dividend of a share. Those shares now down in extended trading by 2 percent, John. OK, Contessa, thank you. Another one is down as well. IBM earnings are out. Let's get you those numbers for Q3 2024. IBM reporting a top line miss, bottom line beat. Q3 revenue is $14.97 billion versus $15.06 expected. Earnings per share, $2.30 versus $2.23 expected for Q4. The company guiding to Q4 constant currency growth in line with this quarter,

which isn't great news, but also reaffirming free cash flow guidance. So why the miss? Well, it's not the software business where investors have expected growth. That is up 10%. It's the strongest showing in a while. The problems are infrastructure and consulting. Now, I spoke with CEO Arvind Krishna about these results today before the analyst call. Here's what he told me.

On software growth, he said really strong demand and that mainframe software did well. Automation and data did well. It's kind of across the board and reoccurring revenue is doing really well. All in, I see actually very little to complain about in our software. People might say this is all acquisitive. Not true. Seven percent of the 10 points of growth was from organic and only three points came from acquisition. Now, on consulting falling

short, Arvind told me, I think that when you have a bit of uncertainty, meaning in the macro economy, most CFOs look to tighten the belt. And the first thing you tighten your belt on is third-party discretionary labor. And so the portions there that are strong, nobody's delaying their SAP projects. Nobody's delaying big digital transformation. But there is third-party discretionary labor. People are tightening their belts. That's where we're starting to see that. So I kind of see the same going for the next few months. How long into next year will that go? I can't really predict for you. Is it long-term? No. I think this is a two to six quarter, something like that issue of which a couple of them are behind us. Now, I asked about consulting headcount given that that business isn't growing. Does he need to cut?

He said, now, you do have to be careful about cost because when you're flat, not plus 10 percent, that means you got to watch your cost. You've got to watch what skills you have. You've got to be a bit more scalpel like. But that can be done on the flow. That's the business that we hire anywhere from 10,000 to 20,000 people a year. So it's not something draconian and catastrophic. What you have to do is be much more selective about who you're bringing into the business. All of that said, their AI book of business is growing nicely, Morgan. But this is a stock that has been going up quite a bit, as Paul Hickey was just mentioning. So the reaction figure, it seems like once after hours they heard about the software business growth, it came off the lows.

It was down 7 plus percent. I was just about to point that out. As you're talking, it's coming back off of the lows. But this is to your point. It's also a stock that's been at fresh highs recently. Can we just go back to the consulting piece of this? Because the fact that he's talking about discretionary labor specifically, how much of that is a macro read to what we're seeing in the labor market and in this uncertain economic environment more broadly right now?

Well, I think it does speak to that, but you wonder, well, how much of this is really about the macro? How much of it is going to be company specific? Because we talk about this across certain industries when retail is talking about shrinkage. How much of it is this a mass problem? Is it with the, I asked them specifically about the election though, and Arvin did say, yes, people are uncertain about policy. And so on certain types of things, it makes them hesitant on how they spend. Not across the board, though, because that software business of theirs is doing better than it has in quite a while. All right. Well, we've got more earnings out. Mattel, those results, Julia Borsten has them for us. Hi, Julia. Hi, Morgan. Mattel beating expectations in terms of

earnings, reporting adjusted earnings of $1.14 per share versus estimates of $0.95 per share. So quite a big beat there. Revenue is missing by just a hair coming in at $1.84 billion versus the $1.86 billion that analysts had expected. Gross margin, adjusted gross margin of 53.1% is an increase of 210 basis points year over year. The company also announcing that in the third quarter, it repurchased $68 million in shares, bringing its nine-month total to $268 million. And in terms of guidance here, the company maintaining its fiscal year adjusted EPS guidance of between $1.35 and $1.45. The street was looking for $1.44 adjusted. So that range is still above where

the adjusted EPS was in fiscal 2023, which was $1.23. But that range is sort of a hair lower than the analyst's expectations. Back over to you, Morgan. All right, Julia Boorstin, thank you. With shares of Mattel up 1% right now. Hot wheels, hot in the Brennan Cacciotti household, monster trucks especially. So not surprised to see these numbers. Don't miss an exclusive interview with Mattel's CEO. That's coming up tonight on Mad Money. That's at 6 p.m. Eastern.

We've also got ServiceNow earnings now out. I've got those for you. It is a beat and a raise. Overall revenue comes in at $2.78 billion above the $2.75 expected. Subscription revenue is $2.78 billion above the $2.75 expected. Subscription revenue is $2.72 billion. Earnings per share, $3.72 a share over the $3.46 expected. Remaining performance obligations, that's a pipeline measure, $19.5 billion versus $18.45 expected.

CRPO is $9.36 billion versus 9.09. On the guide, ServiceNow guiding to subscription revenue of 2.878 billion at the midpoint versus 2.86 expected. And I spoke with ServiceNow CEO Bill McDermott about these results. Again, before the call with analysts, here's what he told me. I asked him specifically about the company saying it's got 44 customers spending at least a million dollars on AI. How is that structured? He said, we're getting a million dollars right out of the gate in our subscription revenue from those customers. They'll repeat that each year. In fact, we had six customers that were spending over five million. We had two that were over 10 million. So what you're seeing is the cohorts of this platform

and our biggest deals, they included seven out of 10 products in our biggest deals. In other words, they're getting more than just one product. They're bundling a lot in with these customers. I also asked him about the margin impact of AI as those workloads grow. People talk about how much you have to spend on NVIDIA. Is this really margin positive? He said the margin impact on this is equivalent, if not better than the standard run rate margin. So we're not taking advantage of people on pricing, but it's not dilutive to pricing. Again, remember the domain specific nature of our LLMs. There's two benefits to that. One is the margin performance for our shareholders is great, but also for the customers that are working with customer data. So they're secure,

there's zero latency and they're cheap to run. So it's like 175 GPUs versus one GPU to run on a process on the ServiceNow platform versus going out with an LLM on the Internet, as an example. I also asked him about whether customers are pausing demand ahead of the election. So this compares to what we just heard from IBM. Bill McDermott says, no, not at all. I think the prevailing theme is customers are going to have to digitally transform regardless of who wins the election on a global basis. It's the same story. I've been all over Europe for the last

couple of weeks and I have never seen Europe leaning in at a government, public sector or private sector level more. They're leaning in more now than ever. So it looks like the IBM piece on software grew up 10 percent. ServiceNow is seeing that in spades. We see that reflected in these results now. Granted, ServiceNow stock has been doing quite well recently. So we've got we'll see how the stock continues to. That's another one that had more of a negative reaction is coming. It looks like off of that bottom. Yeah, but to your point, AI is the secular growth story within tech right now. This is where folks are putting money to work. If it's more uncertain or they feel like they need to tighten belts, it's everything X AI.

Yeah. Yeah. All right. Well, let's go back to our panel, shall we? Paul Hickey, want to get your reaction to everything we just heard? Yes. I mean, I think the theme of these earnings reports is the AI businesses remain strong. And, you know, what we've been calling this bull market since it started is the AI bull market.

You know, the low in the Nasdaq was right when chat GTP was announced. And the stocks that have been leading have been all, you know, AI centric companies and companies that have stood to benefit. And ServiceNow has benefited immensely. If you just look at this, the stock price over the last several quarters, and I mean, it's down two and a half percent in reaction earnings right now. I think that's nothing for this stock. So, you know, who knows where it'll be even by the close tomorrow. OK, we've got one more earnings number or earnings report, I should say, to bring you. And that's Lamb Research. Seema Modi has those numbers. Seema.

Morgan, this is the semiconductor equipment maker with first quarter results, which came in better than expected. 86 cents on its bottom line. That is a six cent beat. Revenue topping expectations as well. Gross margins better than what Wall Street was expecting at 48 percent. The street was estimating 47%. And better than expected guidance, too, which was a key concern for Wall Street following that disappointing earnings report that we received from ASML last week. Tim Archer, the CEO of Lam Research, says,

Our investments in key technology inflections position us well to outperform wafer fab equipment growth in 2025 and beyond. This is a company that does have high exposure to China guys with about 40 percent of sales shares are up about five percent because it has been an underperformer in recent months. Morgan and John, back to you. Definitely a juxtaposition to ASML last week. Sima Modi, thank you. All right, Paul Hickey, our thanks to you as well. And Mike Santoli, we'll see a little bit later in the show. We have a news alert in the defense space.

L3Harris and Palantir just announcing a partnership. They are working together on advanced technology development, L3Harris' digital transformation. The joint effort will leverage L3Harris' sensors and software systems along with Palantir's artificial intelligence platform, which will, quote, enable new levels of capability and resilient connectivity, ensuring warfighters can make more informed decisions faster. The companies say the partnership involves a number of ongoing initiatives, including the U.S. Army's Titan program and the service's unified network strategy. Tomorrow on Overtime, we've got an exclusive interview with the CEO of Palantir, Alex Karp, and the CEO of L3 Harris, Chris Kubasik. They're going to join us right here to talk about this deal and more.

All right. That is exciting. Quite a hot area. We've got somebody here who's going to want to talk about that. But for now, let's get more on Tesla because that's reporting today. That stock is moving high after a big beat on the bottom line. Revenues were a tad light. With us here, Dan Ives, Wedbush Senior Equity Analyst covering tech.

I know you're going to want to talk about pound here eventually, but let's talk about Tesla because those numbers are out now. Revenues are light, but hey, earnings. What matters more here? I mean, the whole story is about gross margins. I mean, that's really been the headwind on Tesla stock. I'd say 30 to 48 hours of a headwind to the stock. You saw gross margins. I mean, this is a blowout. Not even us thought that we could see a gross margin. We're essentially anywhere from a two to 300 bit beat. This shows price cuts now under control. Margins start to tick back back up you start to get now toward

20 gross margins i think this is the start of the stock ultimately this will have a three in front of it as a stock as the gross margins start to trend up and as well as growth into next year from a delivery perspective so does the robo taxi stuff matter? Look, I think longer term, we think the longer term story here is autonomous, is robotics, is essentially the AI play. Street, what they needed to see here, show me margins. You cannot have margins going toward 13, 14%. Now that margins are starting to level off, that is so important, not just from a cash flow perspective, but showing the worst is in the rearview mirror.

And when you think about all the bears and all the negatives, it comes down to deliveries will start to uptick. China, I think, is a source of strength in the quarter. But that gross margin, it's a Goldilocks for any bear. OK, it's a Goldilocks for any bull. The bears, it's kind of a nightmare for because that was ultimately the core of the story yeah to your point free cash flow 2.74 billion dollars that trounced expectations for q3 but some of the details we're getting here on the outlook i think are also really notable they're basically saying despite the ongoing macroeconomic conditions we expect to achieve slight growth in vehicle deliveries in 2024 also talking about energy storage deployments that are going to more than double this year but perhaps this is most notable because I know you've written about this, saying plans for new vehicles,

including more affordable models, remain on track for start of production in the first half of 2025. What should we take away from that when I know a lot of folks have been looking for a sub $30,000 vehicle? We're even expecting to get some details on the ro robo taxi event which maybe was unrealistic the linchpin to the story from a growth is a sub 30k vehicle and i believe that that hits by middle of 2025 that's the growth i mean that's ultimately you're talking about like single digit growth this year that's how you get to 10 12 15 type growth margins under control that's what the bulls want to see and i think the fact that they actually doubled down on and i expect clearly on the conference call they'll focus not just on margins

but more details around that vehicle look robotaxi day we could argue you know many would say that they're disappointed i believe ultimately that shows the vision the autonomous and the eye vision street need to ultimately see stop talking the talk talk, walk the walk, show the margins. They did it. And Musk really has, I think, stepped up in that capacity. In what's been a year of softness for EV demand and obviously more adoption of hybrid vehicles, for example, are we going to look at Q3 as an inflection point for that changing,

especially when you look at results like this today? Or is this a Tesla-specific story as they do deploy more manufacturing techniques, more software, more AI, both internally and externally? I think it's a combination. I mean, you look at GM's quarter. I mean, that was a Juan Soto-like quarter for GM. And then you look at what we've seen in terms of Tesla. I believe this is the inflection point. This right now is the start to me of what we're actually starting to see from a gross margin perspective. The renaissance of growth come back.

They've essentially been in between two growth waves. Next year, you have a sub 30K vehicle. Then the autonomous and AI vision plays out. And that's, in our opinion, that's how you get to trillion, trillion and a half mark cap. And right now, as we've seen, look, New York City cab drivers bearish on Tesla. Okay. And I think that's a good setup relative to what we see in the next three, four quarters. Listen, we've got to go, but quickly, Palantir, your reaction to that news? I mean, that's huge.

It just shows doubling down on carp and Palantir on the defense side. When you think AI in the two or two area code, Palantir really owns that market. The fact that that partnership, just like Microsoft and others, we'll hear more in your interview tomorrow. That's a huge flex the muscles for Palantir and Carp. All right. Dan Ives, great to have you on set. Well, we will talk more about Tesla in just a bit. But when we're joined by an early board member, Steve Wesley.

Up next, we're going to break down IBM's quarter and the indicators for the rest of tech with that call kicking off at the top of the hour. Welcome back to Overtime. Let's get another check on shares of IBM. They are moving lower on mixed Q3 results. Let's bring in Evercore ISI Senior Managing Director Amit Dharianani. Amit, it's really the consulting business here that's got my eye. You know, the mainframe cycle is what it is, but that's a business. A year and a half ago, I asked Arvind about it. He thought with the constrained labor market, it might do better. It hasn't. How much of a concern is it? John, that I think is the biggest issue they have right now. So the software business is doing really well. Red Hat accelerated to double digit. Mainframe, to your point, it is

what it is. You're getting the refresh cycle early next year, probably will be a good thing next year. The issue they're going to have is the consulting business has gotten incrementally worse. Again, no one expected a lot out of it. They expected one, two percent kind of growth. It's flattish. Their December quarter guide, we think, implies further revenue degradation. And so the question will be, is that really the consulting stuff that's getting worse? And then optimistically, I'll tell you, John, you could look at this and say they've been about six months behind Accenture, both in terms of getting into the correction and hopefully getting out of the correction. But that should imply they can perhaps start to see consulting business stabilize and ideally grow early next year. That said, at the end of our conversation, Arvind pointed out

a few years back, I think he said 2018 or so, the software business was maybe 28 percent of IBM's overall revenue. Now it's more like 47%. Are we getting to a point where the business that is more of a growth business and that's very margin positive is going to become a much more significant part of results? Mathematically, yes, it's going to become a bigger part of the revenue and the portfolio for sure, right? What I would say, though,, all the AI momentum that's there is really on the consulting side. And so perhaps what could drive the valuation higher for IBM

is actually seeing better growth in AI being almost better growth in consulting and being the enabler of AI for enterprises. I think that's where you get the better valuation from versus the software business where, yes, they're doing well, but I don't think you'll get the same multiple as you could get if the consulting business reflects higher for them. Given the fact, Amit, that you also cover names like Seagate, which was a big mover to the downside

today, Vertiv, which was also a big mover to the downside today, what is your early sense this earnings season of data infrastructure build-out, what we're seeing, what the numbers are telling us? Because they do seem to be pretty strong as this AI investment cycle continues to play out. But perhaps investors have gotten a little ahead of themselves in their excitement. Yeah. Listen, the numbers, to your point, are actually relatively good, right? Vortec, Seagate. Even IBM, I tell you, at a different price, IBM's stock would have gone up on these numbers, not down. So I think fundamentals are, generally speaking, fine.

AI investments are going up, not down. Enterprises are starting to recover. All this stuff is positive. The backdrop you have, though, is all these stocks have done extremely well in the last 90 days. So it's a little bit of, did expectations get a bit ahead of reality, which is why a name like Seagate or Vortiv, for example, today has pulled back a little bit with the markets. Again, your IBM is a little bit different.

I think IBM will tell you software is doing well. Mainframe is weak, but that's into a big refresh cycle. The focus of them has to be what happens to consulting. And, you know, again, if you look at the Accenture playbook and you look at the 3 billion AI bookings that they have, it should imply there's an inflection here early part of 25. okay so with ibm down four and a half percent right now or some of these other names having fallen are are they buys here you know ibm i think into a lot of catalysts that play into their favor next year uh be that the hashi corp deal that closes or the consulting recovery or the ai tailwinds i think ibm is a very attractive asset to own uh given the fact that they should be able to beat street numbers in 25 right now

okay amit daryanani thanks for joining us thank you i i asked arvin about ai benefit flowing through to consulting seems like that might take longer than a couple quarters we'll see well chip stocks getting wrecked today including arm holdings and Qualcomm after some bad blood between the two companies, even though they're partners. We've got some details on the feud next. Welcome back. We have a news alert on Elon Musk. The Justice Department has sent a letter to Elon Musk's political action committee warning that his $1 million sweepstakes to register voters in swing states may be illegal. A source familiar confirmed the letter to NBC News.

The petition currently promises a prize of $1 million given randomly to those who've signed the petition. But in order to sign the petition, one must be a registered voter in certain swing states. Federal voting laws prohibit paying people to register to vote. So we will continue to monitor for any developments. Meantime, stocks are under pressure today, but one market winner, the U.S. dollar, outperforming against a basket of currencies and building on its recent stealth climb. Mike Santoli is back and he has more. Mike. Yeah, Morgan. I mean, arguably the pressure on stocks might have at least a little bit to do with the forces that are driving up the U.S. dollar index. Take a look at a two year chart of of where we are. First of all, we're launching off of about a

15 month low, which came shortly after the previous Fed meeting in September, when we basically considered there was going to be a lot more rate cutting to come. And then you had a lot of economic data that came in much better than expected. And now the markets are trying perhaps to front run a potential Donald Trump win November 5th. All these things working in a similar direction. But I think it's an interesting cadence. You had this big high back here, another one in the latter part of last year, another significant high in the spring into the summer of this year.

And look at what it tracks. The U.S. Economic Surprise Index coming out of Citigroup, which has also had a pretty sharp upturn from a depressed level, as did the dollar index. And so, you know, there is an economic fundamentals here or pricing out more Fed rate cuts. And you see we're above zero now. So the economic numbers have been coming in better than anticipated on balance. And you basically I think we're going to track this a little bit. Now, the question is, do Treasury yields and the dollar get up to a certain point where it starts to work against the economic numbers and economic momentum or at least the perception of those things?

And that's often how the market sort of self-corrects internally across assets. Morgan. Yeah, you are seeing these election outcomes being gamed out in the FX markets. I mean, the dollar versus the Mexican peso, for example. But should we be talking more about the U.S. dollar surging versus the yen again? I mean, that's a huge part of it, right? It's a big part of the dollar index. That dynamic has kind of clicked back into place. And so I think it is all about relative central bank posture at every turn. At least that's the immediate influence there. I do think you also see it filtering into the equity market in terms of dollar strength. If we're going to have to extrapolate from here, things like consumer staples companies starting to talk about some currency headwinds and

translation effects, things like that. So I think it's definitely something that's more on the radar, even if at the absolute level, the dollar is not necessarily strong on a longer-term historical basis. All right. Mike Santoli, thank you. Well, an escalating licensing dispute between Qualcomm and Arm, sending shares of both down much more than the tech sector and semiconductors today. Bloomberg reporting that ARM has warned Qualcomm it will cancel the chip giant's architectural license in 60 days, which would be right before Christmas Eve. Why the bad blood when Qualcomm's ARM's largest customer?

Well, it comes down to both companies' desire to expand into markets beyond mobile. Qualcomm bought another ARM licensee, Nuvia, about four years ago with plans to bulk up the computing horsepower in its laptop and server offerings. We saw some of the fruit of that Monday when we had CEO Cristiano Amon talking about the Orion CPU cores. The issue was already headed to court in mid-December. Now, Qualcomm spokesperson giving us a statement that says, in part, this is more of the same from Arm, more unfounded threats designed to strong Arm, a longtime partner. We are confident that Qualcomm's rights under its agreement with Arm will be affirmed. Arm's anti-competitive conduct will not be tolerated. saying following Qualcomm's repeated material breaches of ARM's license agreement, ARM is left with no choice but to take formal action requiring Qualcomm to remedy its breach or face termination

of the agreement. This is necessary to protect the unparalleled ecosystem that ARM and its highly valued partners have built over more than 30 years. ARM's fully prepared in the trial in December and remains confident the court will find an ARM's favor. Morgan, this is a dangerous game, I will say, that ARM in particular is playing. Because you'll recall Qualcomm was one of the first to stand up and say when Nvidia was planning to acquire ARM, no you can't do that. And this is what they were afraid of,

that architectural license access might be affected. The fact that this is happening now and Qualcomm is using the term anti-competitive to refer to ARM, well, if you think about it, ARM's in a lot of stuff. They brag about that. They're in Apple devices. They're in all Android devices. All these smartphones now moving into servers. I mean, if you've got your closest partners arguing that you're anti-competitive and you're ARM, that could go very badly very quickly. We'll see where it goes. All right. We'll be watching it.

Well, after the break, former Tesla board member Steve Wesley joins us with his first reaction to the Prince, and if he's expecting any surprises from Elon Musk on the earnings call. Stay with us. Welcome back to Overtime. Another check on Tesla, climbing on a big earnings beat, adding about $57 billion in market cap right here in Overtime. Another check on Tesla climbing on a big earnings beat, adding about $57 billion in market cap right here in overtime. Stocks up 9%. We're just over half an hour away from the earnings call.

But joining us now is founder and managing partner of the Wesley Group, Steve Wesley. He is a former board member at Tesla. Steve, it's great to have you back on the show. It looks like every margins are a big part of what matters here for Tesla. It looks like every margin metric the company beat, including gap gross margin, ex-regulatory credits, which came in at 17.1 percent versus expectation of 16 percent and change. What was your biggest takeaway? Was it was it the strength in profitability here and the return to growth of margins or was it something else? Well, I think solid numbers, 22.2 billion in net income, that's great news. But if you look

more carefully, I think people have to be a little worried about stagnant growth. They delivered 463,000 cars this quarter, $25.2 billion in revenues. They're on track to grow from about $96 billion in revenues last year to 100 billion this year that's four percent growth and this is a far cry from the 50 percent growth tesla had just two and three years ago big picture no 25 000 car on that horizon the company's betting the farm on the robo taxi that appears to be two years out i'd'd be a little worried. The saving grace here, though, Tesla's energy division is taking off. They will do roughly 10 billion in revenue this year in power walls, gigapacks. That's 50 percent year over year growth. Right now, Tesla's energy division is saving the company. And they did talk about this in the results that the energy storage

deployments are expected to more than double year over year in 2024. But they did also make comments about plans for new vehicles, including more affordable models, that that remains on track for start of production in the first half of 2025. What do you read into that? Well, you know, we'll see. They don't have a full cupboard of new vehicles. You know, the Cybertruck's been a bit of a flop. I think they made an error in not bringing the $25,000 car out sooner. What Tesla appears to be doing is coming up with a slimmed-down version of the Model 3 that they can hope to sell for that price.

The rub is BYD has come on like a freight train, really taking over the subcompact market with $10,000 to $20,000 vehicles, booming sales in China, Southeast Asia, Mexico, heading our way soon. So the big smackdown between Tesla and BYD is coming. That's going to be what investors should watch. Steve, if I were to take the other side of this excitement over the margins being better, I might say, well, maybe they stopped cutting prices to goose deliveries. And so that makes margins better. But you got slower growth and lower deliveries. Has anything really changed? I think you're dead on right. I mean, look, despite what you read in some papers,

more EVs are being sold every year in the U.S. and globally, 21 percent globally. One out of five vehicles sold in the world, 17 million, will be electric EVs this year. So whoever wins the EV market is a great shape. Tesla's in a strong position. But they need new products. And the fastest selling segment of the auto market is that subcompact market. They don't have a great product there. China's BYD Seagull are selling for $10,000 a car.

And it's a pretty good car. Now, a lot of Americans will say, we're just going to slap 100% tariffs on that. Look, they can sell the Seagull in the U.S. for $20,000, and it's still going to be a pretty attractive vehicle, and you need to be very careful. Chinese don't turn around and start slapping tariffs on U.S. cars sold in China. So how many quarters do you think before we see that play out? And is Europe basically lost as an EV market for brands that aren't Chinese? Well, look, seven of the top 10 EV brands in the world are Chinese. And so I think the U.S. finally got the memo.

President Biden, Harris, the IRA Act, we're building battery plants and EV plants in the U.S. Quickly, you're going to see more models coming to the market. Our grid is being built out. EVs are coming, by the way. For the first time ever, this green premium you had to pay to buy an electric vehicle has turned into a green discount. These things are just getting cheaper because the cost of batteries continues to come down. But Tesla and the other major automakers would be wise to look at the Chinese and think really hard about how soon they can get that $20,000 EV in the market. That's the holy grail. So what is going to matter the most from Musk and the rest of leadership on the call then?

Well, look, investors short term are going to be happy with increasing profitability. But longer term, the real issue here is how much longer can Tesla be valued as a technology company? And to do that, you've got to do two things. You've got to continue to bring new product to market. Tesla's a little behind there. And you've got to show real technology products. Now, Tesla, again, is betting the farm on this robo-taxi. But their October 10th event was a little bit of a nothing burger. And they made an announcement toward the end,

don't expect full self-driving until 2027. Well, heck, that's two years from now. Waymo's in the market, fully regulatory certified in five cities, moving to seven. They're booming. Tesla's got to find a game plan to catch up with Waymo. We'll see what they do. Steve Wesley, thank you. Thank you. Up next, a winner in a down market today. Energy technology company Baker Hughes getting a lift on quarterly results. And the CEO told me about one area where

they're seeing particularly strong growth. We've got those comments and more when Overtime returns. Welcome back. Baker Hughes, one of the top names in the S&P 500 today, finishing up almost 3%. The oil field services giant beating earnings estimates on the back of strong international demand, growing margins. This despite missing on revenue that was partly due to weakness in North America. And I spoke with chairman and CEO Lorenzo Simonelli today and I asked him about the company's growing industrial and energy technology business, the IET segment, which makes and services equipment and machinery used for LNG and carbon capture, among other things. Between now and 2040, we see energy demand increasing by 10 percent. And as you look at natural gas being 20 percent up and LNG being 70 percent up. And this is core to the equipment

that we provide. And that's why we're seeing a decade of continued strength and growth as we go forward with the equipment and also the services that we provide to our customers. Now, that business arguably smoothing out some of the cyclicality tied to things like energy transition and AI infrastructure buildup. Simonelli also telling me he expects the Biden administration's moratorium on new LNG export permits to go away come 2025, implying that that's going to happen no matter who wins the election. This is a perspective change in policy that was first flagged on this show by our own Brian Sullivan just earlier this month. So something to watch. Baker Hughes is now up about 8 percent on the year, handily outperforming its peers, which are, John, negative in 2024,

right alongside crude, which is down over the past 12 months. Very interesting stuff. Well, after the break, key earnings reports that could shape tomorrow's market action. Your Wall Street Look Ahead is next. Welcome back to Overtime. We have a news alert in the energy space. We're going to stick with oil field services here for a moment. Bloomberg just reporting that Transocean is in merger discussions with rival Cedril. Both stocks getting a bounce, as you can see right there. And Overtime, Cedril is up almost 9.5%, 10%.

Transocean is up more than 2%. And let's get a check on some of the big earnings movers this hour. Tesla getting a big boost after a healthy beat on earnings. 72 cents per share versus estimates of 58 cents. It's up 8.5%. Whirlpool turning in a mixed quarter, beating on earnings but missing on revenue and raising its full year guidance. Whirlpool up about 3.7

percent. Molina Healthcare getting a solid bounce up 11 percent after beating on earnings and revenue, reaffirming guidance. And United Rentals is lower by about three and a half percent after missing on earnings and revenue. We've got many more quarterly reports coming tomorrow, including some key bellwether names. In the morning, we're going to get UPS, Honeywell, Northrop Grumman and American Airlines. And after the bell right here in overtime, we're going to get numbers from Western Digital and defense contractor L3 Harris. Plus, do not miss our exclusive interview with L3 Harris CEO Chris Kabasic, along with Palantir CEO Alex Karp. That's going to happen right here on Overtime tomorrow. John, we've had a busy hour, and the takeaway here is really that companies are continuing to spend on AI,

even as perhaps they tighten belts in other places. Service now, now just down fractionally here in Overtime, less than 1%. IBM down a little more than 3%, but given how it's been performing up to this point, you've got to take that with a grain of salt, as Ahmed Daryanani told us. Performance and software overall, pretty strong. That seems to be the theme. We'll see how it goes with the bigger players, including the hyperscalers. Yeah, we were also talking about Tesla earlier.

Cybertruck became the third best-selling EV and Q3 in the U.S. behind only Model Y and Model 3, so maybe not so much of a bust. That does it for us here at Overtime.