Closing Bell - Closing Bell Overtime: Earnings From Tesla, IBM & Much More 1/24/24

Episode Date: January 24, 2024

A busy day for earnings with Tesla, IBM, CSX, ServiceNow and more reporting and we have the numbers and what they mean, plus analyst from BD8’s Barbara Doran. Ark’s Tasha Keeney and former Tesla board member Steve Westly break down what the latest quarterly results mean. Evercore’s Amit Daryanani on IBM’s strong quarter driven by AI. Third Bridge’s Scott Kessler on ServiveNow. 

Well, the Dow's a little weak at Russell 2000, a little weaker. S&P 500 still at record levels, but about flat. That's the scorecard on Wall Street. But investors are now set for a wave of earnings. Tesla, IBM, ServiceNow, CSX, Las Vegas, Sands. Just some of the big names set to report results in just moments. Instant analysis of all the numbers. That's coming up. Yeah, and while we wait for those earnings to come out, let's bring in our market panel. Joining us now, Barbara Duran from BDA Capital Partners and CNBC Senior Markets Commentator Mike Santoli. Barbara, we're now maybe looking for individual narratives.

I mean, even if the market can go higher and, you know, S&P maybe a little higher today, do you expect it to go a lot higher? What are the stories that investors really can believe in to drive things forward for them. John, this is a tough moment in the market because what you saw today, I mean, we've seen parabolic moves since the fourth quarter and a little bit of backing and filling as we started the new year. But of course, it's just taken off and been led by the same leadership as last year, the mega cap tech. But today, just watching all the stocks make new highs, I mean, I have to admit, I trimmed a little bit of my beloved names, you know, excuse me, Palo Alto, NVIDIA, Microsoft, because I said this for the short run, I think we've peaked out a little bit here. So I think there's going to be a little bit of backing and filling. You don't sell the names, you trim a bit.

But this is still going to be the play. I mean, I still, in my view, is the Fed is done hiking, but it's not going to cut rates until sometime later this year, given the economic news, whether it's retail sales, jobs, wages, is just too strong. Plus, housing could start to, you know, you start to see an increase with mortgage rates coming down, you know, in housing activity. And of course, that has a big ripple effect. So that could be more growth, meaning the Fed does not need to cut rates anytime soon. And so it's really just a question of, you know, inflation coming down, which looks I don't think the inflation issue is structural. You know, I think Powell a few months ago had mentioned when it answered her question, are wages the reason we're having inflation? She said, no, it's really this continual rebalancing of supply demand issues we had because of COVID.

So I think you're going to see a good PCE number, the Fed's preferred measure of inflation, this Friday. And I think it's going to be positive for the market. Yeah, we're going to be looking out for that, for sure. Mike, tell me now, energy was the best performing sector today. It hasn't been performing well lately overall. And of course, we've got bank earnings that have been rolling out and financials were also in the green today. What are you seeing overall? What's the mood? I would read that mostly in terms of energy as just a little bit of laggards getting a little bit of a bid after this pretty mature rally that we've had in everything else. I'm not sure there's much of a macro read through on that, although natural gas prices were up today. So there's some firming on that

front. Financials have been OK this week. Once we cleared through the meat of bank earnings season, it kind of survived it, even though they didn't trade all that cleanly off of those numbers. So I'm not making too much of the sector action today, aside from this big burst higher in tech that then mostly backslid once we got an uptick in Treasury yields after that five-year note auction at 1 p.m. So, you know, we've had a little bit of a rip here in the leading stocks, and there's still some rate sensitivity below the surface. Barbara, I do wonder how many legs this AI story has for how many different stocks. Clearly, we've seen NVIDIA's got, I know you said you're trimming, we've seen Supermicro, they pre-announced last week, they got a big pop. But now we wonder, some software names, you know, something old, something new, IBM and ServiceNow,

both going to report today, how dramatic do the results have to be in order to make investors believe in their individual AI stories? Well, it is a good question, John. I don't think the results right now have to be that dramatic because we're still very early stages. Like IBM, for instance, it's really a question of they've got the technology and the software combined. At this early stage, a lot of people need help, you know, with the implementing the tools of AI. So their consulting business, you know, should be helped. And it's a question of what they see for next year. And of course, consulting is lower margin than their software. And ServiceNow has so many different, they have a platform, they're expanding their services, they are incorporating AI into all their different offerings. But the first time

they had a full quarter of doing that was the fourth quarter. So again, very early stage. So it's really going to be interesting, the commentary that they are seeing from their customers, how quickly the adoption is going to happen. And that's going to be important because, obviously, IBM is up over 20 percent in the last 12 months. It's near its highs of 10 years ago. And ServiceNow has been ripping as well. So it's really about the speed of adoption and i think for instance that's why i've seen the video go bonkers because their rate of growth is real and sustainable beyond the next few quarters and it's getting rewarded for that so if we shift from digital infrastructure to literal physical infrastructure csx earnings are out and it looks like a beat on both the top and bottom

lines here eps coming in at 45 cents a share. That was a penny better than estimates. Revenue, 3.68 billion. That was also a beat for the top line. Operating income, 1.32 billion dollars. If you look at volumes for the fourth quarter, total volume, 1.56 million units. So that was an increase of 1 percent year over year. Merchandise volume up 3%. Coal up 3%. But intermodal volume, flat. Operating ratio, 64.1%. That was a little bit higher than street expectations. Lower is always better for the railroads.

But in general, even though the stock's trading about flat right now, it was a beat on the top and bottom lines. Also, don't miss my exclusive interview with CSX CEO Joe Henricks. That'll be tomorrow in the 10 a.m. hour of Squawk on the Street. So, Mike, if I just go to you here with this, I mean, transports have been weak as of late, and we know some of that's airline related. Yes. Okay, never mind. I'm going to interrupt myself and go to Phil because Tesla earnings are out. Phil. Morgan, we have a miss on the top and the bottom line by Tesla. The company earning 71 cents a share. The street was expecting 74 cents a share for the fourth quarter.

Revenue coming in a little shy of expectations at twenty five point one seven billion. The street expecting twenty five point six one billion. We're just starting to go through the numbers right now. We're going to see if we can find out what the automotive gross margins were, excluding zero emission vehicle credits. Remember, the metric, the number that people are looking for, 15.7%. That's the estimate among analysts. If it's below 15.7, probably puts more pressure on shares of Tesla. If it's, let's say it's above that, let's say it comes in above what it was in the third quarter, which was 16.3%, then you could see perhaps the shares bouncing back a bit. But again, Tesla, a miss on the top of the bottom line in the fourth quarter, 71 cents a share. The street was expecting 74 cents a share. Guys, I'll send it back to you.

Okay. Phil LeBeau, thank you. Mike, I started with the transports. I'm now going to shift to Tesla since it is the first of the magnificent seventh report. We're still waiting on some of those key metrics for the name. But in general, the fact that we have a miss on the top and bottom lines shares under pressure down about five percent right now. Initial takeaway. Yeah. And it seems like at least first glimpse, not a lot of reassurance about current run rate or twenty twenty four delivery. So the market was pretty well kind of aware of the risks to the downside here. That's why the stock very conspicuously within the big seven of the Nasdaq has not been trading particularly well. We'll see if it has, again, coattails. It might not really have to. It's kind of its own

story in terms of its own demand flow. So I do want to see more of the detail. But at this point, markets kind of taking it at face value. But then the stock, again, is already discounted. Not a wonderful quarter. Barbie, in overtime, Tesla trading below $200 a share. It hasn't done well year to date. It's down a little bit more than 16%. Does it matter for the overall market?

I mean, there's talk. Jim Cramer is talking about it being booted out of the MAG- favor of another name. But, you know, Tesla's been one of those names. It was alongside NVIDIA for a long time, representing excitement. So what does it mean? Well, I think it's over for Tesla. I think that's pretty clear. You've had two major forces, you know, right now, and who knows if it revised, but the EV market is stalled out for now for a variety of reasons, whether it's lack of incentives, you know, prices, you know, have had to be cut in order to move. There's a glut of inventory, you know, and Tesla is still the stock is still at a 63 P.E. And they don't have any new models coming out this year.

I mean, they're waiting. We're waiting for the budget model. But when you have to cut prices to move inventory, you've got a problem. That's a fundamental problem. So I think the stock can go lower here. And I am not straightening down. I've got to interrupt you because IBM earnings are out and the stock is up after hours. Christina Parts and Neveless has the numbers. Christina. And that's because it's supposed to be for both revenues of $17.4 billion and earnings per share of $3.87. As usual, revenue was driven by its software and consulting business. And with the CFO Jim Cavanaugh telling me moments ago, their AI business actually doubled sequentially. However, if I'm going to use the fact set estimates, there was slight

weakness in software and consulting, which, and I say weakness, it was just a slight miss compared to the estimates, which was partially offset by strength in infrastructure. There were concerns the company couldn't grow its free cash flow to $10.5 billion, but it surpassed those levels to hit $11.2 billion for the full year. I asked specifically about the driver for free cash flow and was told it was a mix of cost cutting as well as a demand. As for guidance, lastly, they do expect 2024 revenue in the mid-single digits. So they're reiterating that, and $12 billion in free cash flow. And they also expect IBM to guide software even higher than the previous range of 4% to 6%, but those details will come out on the call.

And that's how you're seeing the stock pop right now, 6% higher. Guys? All right. Thank you for that. Mike Santoli, go to you on this one real quick. IBM in the 180s, haven't seen that for a while. No. And really, the valuation has been rebuilt as well. The story for years at IBM was really no top line growth, kind of a troubling business mix, not able to really deliver on a

consistent basis. Yet it was cheap, cheap, cheap in the high dividend yield. Now it's different. It's 18 times plus this year's earnings. Dividend yield is below 4%. It's all about the mix skewing toward the higher multiple areas within tech. And we'll see if they can continue to prove that out. I still think there's a little bit of a reservoir of skepticism around whether this can continue. Oh, for sure. But the other software name that we're talking about with numbers this hour is out as well. And that is ServiceNow. That's higher after hours. It's because ServiceNow is reporting Q4 beat on the top and bottom lines. Also, Q1 and full year 2024 guidance above consensus

expectations. Here are the numbers. Q4 revenue is $2.44 billion versus $2.40 expected. Earnings per share $3.11 versus $2.79 expected. Non-GAAP gross margin 82% versus $80.6 expected. Current remaining performance obligations at CRPO, think of that as revenue in the pipeline, not yet recognized, $8.6 billion versus $8.4. Now for Q1, ServiceNow guiding to subscription revenue. This is not total revenue. It's subscription revenue of $2.51 to $2.515 billion. That's $2.5125 at the midpoint. That's better than the $2.46 expected. And now for the full year subscription revenue, the guide is to $10.555 to $10.575 billion versus consensus at $10.4. So I did have a chance to talk with ServiceNow CEO Bill McDermott about these results.

Here are some highlights. He told me what's so cool is we're not just hitting the guide, we're beating the guide, and it's not like that guide is a layup. He also said, and I asked specifically about their Vancouver AI release late last year, he said, our Gen AI solutions that came out in Vancouver represented the largest net new annual contract value contribution for the first quarter of any of our new product family releases ever. That's interesting and important because 2024, not just for ServiceNow, but also for the likes of Salesforce, is supposed to be a year that's AI-driven. I asked him also about the costs associated with AI and where customers are finding value. He said, when you play out in the open internet in the Wild West, you could be into a situation where you're easily consuming 175 GPUs

for a simple case. So we really want, the customer wants us to be fast, accurate, and very cost effective with great ROI. He talked about how this month AWS, they're in the AWS marketplace with ServiceNow and with some of these AI applications. He said, AWS came to us. We did some deep engineering integration back into the AWS marketplace and our customers can buy or rent or lease whatever service now, right now, out of the AWS marketplace and they get the same experience

as if they were going direct to service now. As for the guide, 10 billion plus for the year. That's a big milestone for them. I said, hey, a lot of companies are being cautious on revenue, concentrating on cost, taking their foot off the gas. Are you potentially taking your foot off the gas? He said no.

Some people say they had an iPhone moment with the enterprise. I think this is the NVIDIA moment for ServiceNow. So Morgan. Wow. That's a very strong statement coming from you. Well, it's not for me. That's from Bill McDermott. Okay.

But it's Bill McDermott makes strong statements. Yes. It's all from Bill McDermott. It's a strong statement. It's a strong statement. He makes strong statements, but he's still pointing to where he says the ball is going to go. And he's had ambitious guides guides and he's beating them. All right. And you can see the stock is higher again because of it.

So, Barbara, it's kind of pick your poison here, whether it's IBM, whether it's ServiceNow. You have two names that just beat estimates where it mattered. Certainly some of these strong outlook numbers, whether it's free cash flow for IBM, whether it's subscription revenues and the outlook for ServiceNow. Your thoughts? Well, I agree with Mike in that there's still a lot that IBM has to prove. However, they're beating their free cash flow number. Their numbers are up in general. So I think the stock can maintain its elevation here and possibly see a PE expansion. But I still think there's a lot to be seen. Again, early stages of AI for them. Where is it going to shake out in the consulting and or software? Lower margin. What does that mean for margins going forward? ServiceNow, you know, I don't think the CEO is overstating things.

I think this company has huge growth ahead of it. They are really performing. They are adding so much in the way of product. The AI is so early for them, and they're gaining share. They have high customer retention. I think this is going to be one of those names that always looks expensive, but the earnings will keep coming up, and this is a stock that could outperform for some time to come. Okay. We've got Las Vegas Sands earnings out as well.

Contessa Brewer has those numbers. Contessa. Morgan, slight beat on revenue at $2.92 billion. Consensus was $2.9 billion. Adjusted earnings per share coming at $0.57. Consensus, $0.61. So that's a miss. And Sands' first miss in four quarters.

LVS was hit with some bad luck. There was low hold on rolling play in Macau. That negatively affected adjusted property EBITDA, which is the key earnings metric in gaming, by $40 million. And with that, it missed expectations, $654 million versus $694 million. But then in Singapore, luck turned. Marina Bay Sands beat expectations thanks to high hold and a $71 million beneficial impact. Its gaming numbers eye-popping in Singapore, up 339 percent over the previous year's quarter.

Sands bought back more than half a billion dollars in stock and $250 million worth of Sands China shares. It's paying a dividend of 20 cents a share. But, of course, guys, on the call, we're listening for details about that recovery in Macau. We've heard other companies in this earnings season say it's been meh at best. OK. And now from poker chips to chip making equipment, land research earnings are out. Christina Parts Nevel is back with those. Christina. Nice segue. This is, yes, an equipment making company and they posted a beat on the top and bottom line. You're seeing EPS of $7.52 on revenues of $3.76 billion. You can see the

shares are popping about 2%. And that's also because the Q3 EPS, earnings per share guidance, was pretty good. The revenue guidance was in line. And I was just checking out gross margins for Q2, a good barometer, and gross margins came in at 47.6%, which was higher than what the street was anticipating, or at least the fact set estimates. And that's why you're seeing a little bit of a pop in this stock right now. Okay, Christina Parts and Avalos, thank you. Thanks. We're going to go back to Phil LeBeau, too, because we have more this stock right now. Okay. Christina Parts Nevelis, thank you. We're going to go back to Phil LeBeau, too, because we have more headlines out of Tesla. Phil.

And Morgan, we've got the good, the bad, and the ugly. You want to know why shares are under pressure? Well, you've got a miss on the top of the bottom line. We talked about this right a few minutes ago. They earned 71 cents a share. The street was expecting 74 cents. Revenue coming in light of expectations at $ 25.17 billion. And there is some commentary about their volumes or deliveries for 2024. They are not giving guidance. And then they also say that while the vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as the teams work on the launch of the next generation vehicle at Gigafactory Texas. Bottom line is you don't know if they plan on delivering 2.1, 2.2, how many vehicles next year, just that it'll be at a slower rate than it was in 2023. There is some good news if you

are a Tesla investor, and it has to do with automotive gross margins excluding zero emission credits. That's the credits that they sell to other automakers for building EVs. That margin rate was the expectation, 15.7%, came in at 17.1%. By the way, that's not only better than analyst expectations, that's also an increase from where they were in the third quarter when they came in at 16.3%. So a little bit of good news there if you're a Tesla investor. Now it comes down to the call guys coming up at 530 to see what Elon Musk has to say about the outlook at Tesla. Back to you. Yeah, and he tends to not disappoint in terms of adding some flesh to the bone. Phil LeBeau, thank you. Barbara, I'm going to go back to you for those additional details on Tesla. Auto gross margins, X credits coming in better than expected and an improvement sequentially.

Tells us what? Well, it is interesting because gross margins, it could mean that gross margins troughed in the third quarter, which they were at 16 percent. But I don't I don't think it says much about pricing. I don't think they have the pricing power right now, but it could be about supplies, the batteries, lithium, the prices. You know, the costs have come down. So there may be some cost cutting there. I know they've paused some production. So that's I think we do need to hear on the 530 call which part it is. So I think it's more likely some cost cutting there. OK, Robert Duran and Mike Santoli, thank you both for kicking off the first 20 minutes of programming.

This is only our first block of the show. We've had so many earnings. So many. So many. And we're just getting started. It's a wild hour of earnings. Still ahead, analyst reaction to all of the results from Tesla, IBM, ServiceNow. So we count down to those earnings calls.

Overtime's back in two. Stay with us. Seagate earnings are out. Initial move is lower, about 2%. Pippa Stevens has the numbers. Pippa. Hey, John. Seagate beating on the top and bottom line, earning 12 cents.

That was a surprise profit on an adjusted basis during the second quarter. Revenue in line at1.56 billion. The company also gave strong Q3 EPS outlook, forecasting $0.25 adjusted ahead of the $0.18 estimate. But, of course, these results come after estimates were significantly lowered after Seagate gave weak guidance three months ago. The stock now down 2.5%. Morgan? All right. Pippa Stevens, thank you. Tesla shares in the red after missing on the top and bottom lines and saying their deliveries for 2024 will be at a slower rate than 2023.

Joining us now, ARK Invest's Tasha Keeney and former Tesla board member Steve Wesley. Good afternoon to you both. It's good to have you guys here to break this down. Tasha, I'm going to start with you because it does feel like a mixed bag here. We had the misses on the top and bottom lines. We had the lack of details in that 2024 guidance, just the warning, essentially, that it's going to be slower in terms of deliveries. But the flip side of that is the auto gross margins excluding credits at 17.1 percent

was better than expected and represented a sequential increase. Your thoughts? Yeah, I do think, you know, it's important to note gross margins, automotive gross margins, ex-credits did tick up. And I'd say broadly, the picture here is the future is really electric vehicles, right? We already know that. Other traditional auto manufacturers are actually cutting back on their electric vehicle plans and programs over the next five years. And they're not as profitable on those platforms as Tesla is because Tesla is still the leader in EVs. I'll also say that for the future,

you know, we're very excited that Tesla is investing in AI, that they're focusing on the next generation vehicle platform, because we think that robo taxis, that autonomous driving is completely going to change Tesla's business model. I think that could push overall gross margins up to north of 50 percent over the next five years. And I'm looking forward to hearing more about that on the call. OK. And I've heard you talk about that as well. We've heard him talk about that. Steve, I want to get your thoughts on some of the commentary we've seen this release actually about AI. And specifically, it says here that while they continue to execute on innovations to reduce the cost of manufacturing and operations over time,

they do expect hardware related profits to be accompanied by an acceleration of AI software and fleet based profits. Is this something we've been hearing along the way, too, or does this represent a ramp up in the rhetoric on AI? Well, I think it's just part of Tesla's story. Look, Q4 results are a tale of two cities. Tesla posted record $25.7 billion in Q4 revenue. It's going to be roughly $97 billion for the year. And they sold 1.8 million cars. That's whopping 55% of the U.S. auto market. That's not a bad year. But the big picture is growth has slowed from 51% year over year last year, 19% year over year this year.

So the big story is BYD is coming on quickly. They will likely pass Tesla next year as the dominant EV seller in the world. So right now, Tesla is still number one, but they're going to have to find a higher gear to stay on top. The AI story is part of bringing costs down. The robo story is another part. And there's also Tesla's rapidly growing energy division. So these are all part of the picture that investors are going to have to keep an eye on. But get ready to see the big smackdown Tesla versus BYD for global dominance in the EV sector. Okay. And so, Tasha, I guess the question for investors is in 2024, what kind of a multiple does Tesla deserve? Because it's still very richly valued for right now. And I

mean, the robo taxi thing, I'm not buying it for any time soon. I'm not even sure that that means people buy more Teslas if they can just rent them and if that's actually good for the company overall. But how do you calculate what kind of valuation it deserves right now, given a lot of other companies are pulling back their revenue expectations and getting dinged? So first, I'll say on robo taxis, I mean, you know, I'd encourage everyone to look at the videos online that are coming out of FSD full self-driving version 12. It's amazing. It drives like a human. People are doing full drives, zero interventions. So the fact of the matter is robo taxis are already possible today, just in, today just in select areas. I'm not saying it

works everywhere, right? But we have evidence that it's possible. We see other companies like Waymo also telling us that it's possible. But Tesla itself has great technology. And when we think of scale and the number of cars that they're producing, to put this in perspective, the data advantage that Tesla has is orders of magnitude higher than other players. Tesla is able to look at data from more than 2 million miles per day of customers driving in full self-driving mode. That compares with other players like Waymo that they might have collected single-dig digit millions in the lifetime of the project. So again, I think robo taxis are already here. Don't miss this opportunity. And again, I'm looking forward to hearing more about that rollout plan on the call.

Okay. So Steve, is this an Uber moment for Tesla or an Apple moment? I separate them this way. When Uber was getting ready to IPO, there was all this talk about autonomous driving, you know, being a bumper to their valuation. That didn't really go anywhere. But then at the same time, you talked about BYD versus Tesla. There used to be talk 10 years ago about, oh, Samsung's going to kill Apple's margins

because it's just, you know, a black rectangle. Where are the margins in that? And Apple managed to outpace the competition. So which is Tesla? I think it's Apple. And look, I think autonomous vehicles, robo taxis are a big deal three, four or five, 10 years from now. The big picture now is the whole world's going electric. Someone earlier said, oh, electric sales are slowing. Nonsense grew 33 percent globally. I think they'll do at least

that this year. Here's the big picture that investors need to look at. Tesla dominates the U.S. market, which is 15% of all vehicles sold in the world. They dominate the European market, 17% of all vehicles sold. By the way, Tesla's Model Y, the single biggest selling car on the planet, gas or electric. Those are huge accomplishments. It's a powerful brand. The fly in the ointment here is China is today 32% of the global market, and BYD has managed to show up, very attractive family of cars in the $15,000 to $30,000 range. And the big growth markets globally in the auto industry are no longer the U.S. or Europe. It's places like India, Southeast Asia, South America, Mexico. That's why Tesla needs to kick things into gear,

get their Project Redwood $25,000 car into market by 2025 and in mass production by 2026. If they do that, they'll be in great shape. For the next 18 years, they're going to have to make do with an updated Model 3, new facilities being built in Mexico and Shanghai. And don't forget, they have a rapidly growing energy division. They've just got a lot of pieces to the puzzle that others don't. On balance, BYD is going to do awfully well. Tesla still has the most powerful brand in the world. As the whole auto industry goes electric. It's going to be fascinating to watch. Steve Wesley, we await that call. So many investors. And Tasha, thank you as well. Yeah, that model, too, as folks have been calling it or referencing it,

is going to be, I think, key on the call, whether we get some details on that next generation platform or vehicle. And how investors feel about the multiple in this environment as we're still finding our way. Now, IBM shares staying higher, about 5 percent, still above 180 in overtime. Up next, we're going to get reaction from an analyst who just upgraded the stock to a buy rating last week. Five days after news of a microsoft hack we are getting some news on hewlett packard enterprise amon jabbers has the details amon john that's right a filing just dropping after the close here from hp they are saying that they have been the victim of a cyber attack here also from the same group that hit Microsoft that Microsoft announced last week, that group is known as Midnight Blizzard or Cozy Bear in the parlance

of the investigators who investigate these sorts of things. Hewlett Packard here is saying that they were notified on December 12th that a suspected nation state actor had gained unauthorized access to HPE's cloud-based email environment. They're saying here that based on the investigation, they believe the threat actor accessed and exfiltrated data beginning back in May of 2023 from what they're calling a small percentage of HPE mailboxes belonging to individuals in cybersecurity, go-to-market, business segments, and other functions.

So this is Russian intelligence, John. This cozy bear entity has been well known for a long time, is believed to be Russian government intelligence agents. They are now seemingly hitting a number of American tech companies, including Microsoft last week, the same group now hitting Hewlett Packard. Hewlett Packard now disclosing that this event goes back to as far as May of 2023. They've said that they investigated this back in June, and they are continuing to investigate it now. John, back over to you. Yeah, I think it's going to be a busy year, especially since it is an election year,

and we do have these new SEC regulations around disclosures. Potentially, I fear we're going to be hearing a lot more of these. Eamon Javers, thank you. IBM rising more than 5% in overtime after their earnings report beat estimates. Joining us now to discuss is Evercore ISI's Amit Dharianani, who just last week upgraded his rating on IBM from inline to outperform. Your timing was great. Stock's up after these results and this beat and stronger than expected free cash flow. I do wonder what you think, though, about the fact that it looks like software revenue missed expectations slightly, consulting missed expectations slightly, but infrastructure was so much stronger.

Yeah, you know, well, I guess it's better to be lucky than smart sometimes. I'll take that with upgrade timing. Listen, I think in terms of numbers, you're right. I think there are two parts to focus on. One is the mix of what drove the December quarter performance, right? Software, I think, will be crucial to understand. Red Hat seems to have decelerated a little bit further. Was that a macro issue or something else that drove it? And then infrastructure, in all fairness, is a surprise in terms of how well it's doing. And so durability of that will be key. But I'd say

overarchingly, the biggest driver why the stock is acting the way it is, is the free cash flow guide for next year is $12 billion. And that's close to a billion dollars ahead of what the street was modeling. And I think that's what surprised everyone so far. We've been talking about the fact that this name has moved and moved so dramatically in the last couple of months as a stealth AI play, if you will, that's maybe not so stealthy. The market's finally starting to catch on and embrace that narrative a little bit more. How do you think IBM is positioned as we do head into 2024? What do you expect in terms of that commentary and what it's going to mean for its different businesses in this new year as well? Yeah, listen, I think this is going to be

the focus for the company over the next 12 months, maybe even longer than that, right? And what I'd say is the analogy I would have is just the way Accenture and consulting companies did really, really well a decade ago when you went from on-prem to off-prem workloads, I think IBM consulting is equally well positioned, if not better, as you have to start deploying these AI tools into enterprises to drive productivity, right? This is going to be really hard. You're a Fortune 500 company in a boardroom. I think IBM might be the consultant you have to choose, right? This is going to be really hard. You're a Fortune 500 company in a boardroom. I think IBM might be the consultant you have to choose, right? Our gut is this is what's going to scale up. I think you'll see it in consulting first, but it doesn't end there. I think you'll

see it in software and hardware as well. But certainly consulting is where you'll start to see the AI revenues ramp up again through 2024 and potentially beyond that as well. So, I mean, when does the test really get challenging and investors get to understand whether that's going to happen? Because infrastructure, you know, a lot of that Z, it moves in cycles. I think we're expecting that to be, you know, slowing down more than it was. It's really going to take software and that pull through from consulting to really continue working for this to keep revving, right? Absolutely. I think we'll start with consulting. And probably the first place where you see it, John, is the signings numbers. How big is AI becoming as a

part of that? How fast that is doing? That's probably the first place where you see it. And then on software, you're right. I mean, you'll see it on the Red Hat side where they're trying to level that up very aggressively. But the other part of the business, too, if you look at this transaction processing platform, which is up 4% or 5% this quarter, this is a place where they basically are selling mainframe software, and it's a duopoly between them and Broadcom, simplistically. And I think they both are raising prices rather consistently, and that's another lever that's driving better growth going forward. But AI, I think it will be forced on signings and consulting and then eventually on the software side. Another call where we'll be listening for a lot of details. Amit Dharianani, thank you.

Thanks. Well, the S&P 500 barely closing for a new high, but it will count it for the fourth day in a row. Up next, Mike Santoli is going to look at whether there are any signs that the rally could be running out of steam when overtime returns. Welcome back to Overtime. The S&P is still at record levels, but could it be on the verge of getting overdone? Mike Santoli, what does the data say?

Yeah, John, I mean, even a little sense of that in this intraday pullback today that we have sort of piled on a lot of market cap and got over 4,900 in the S&P in relatively rapid fashion. Here is the index along with its 200-day average. What you see most importantly is this average moving in the right direction. It's right now a little bit over 4,400. But that spread between the index and that longer-term trend is above 10%. When it has gotten up there, you can point to this is a five-year chart. But we were also there even way above that in July of last year.

And so it's one of those things where you want to be on alert for normal type pullbacks just to bring it back into line. If you go back longer in history, there's nothing particularly dangerous about that 10 percent. And you see right here in a very strong trend in 2021, you spent a lot of time well above that trend. So it's one of those short term, you know, be careful or be aware you might be ready for a pullback. Finally, strategists have not been particularly enthusiastic in their projections for the S&P by year end. In fact, the market is trading right around the consensus estimate. It's sort of right in there right now, just about at zero. So you're kind of between forty nine hundred five thousand, whether you look at the average or the median.

This is from Renaissance Macro. They track this. And when the index is up here, it means it's above the consensus target. It means that the street's not expecting great things from stocks. It tends to be bullish for the market. Down here is when you've got to worry when everybody thinks things are going to be easy to the upside. And so, therefore, this is not yet a real cautionary signal. It shows you that the street, as much as people have raised their targets, you had some bears capitulate recently. It's not yet that people really have their eyes very big at the moment, Morgan. Okay. Makes sense. Mike Santoli, thank you. Up next, a top analyst tells us what he wants to hear during ServiceNow's earnings call, which kicks off at the top of the hour. Stay with us.

ServiceNow shares down about a percent in overtime after an initial pop. Q4 numbers out earlier this hour, short of beat on the top and bottom lines on strong subscription revenue growth. Earnings call kicks off in about 15 minutes. The guide was a beat as well. Joining us now, Scott Kessler, global sector lead for tech media and telecommunications at Third Bridge. Scott, you know, yeah, the stock is down fractionally, but it's up more than 35 percent since last quarter, 8 percent just in January. So is it fairly valued even considering all this growth? I mean, John, this could be a situation where either folks are selling on the news or they don't want to necessarily position themselves before Bill McDermott and team talk about order and the guidance in more detail. And so what are the most important metrics that you need to hear. I talked to him a bit ago about the AI momentum, the speed

to innovation that he says customers are seeing, the custom LLMs that they're rolling out across different customer groups, and the fact that he's not taking his foot off the gas because he believes in their growth. What more do we need to hear? Look, I think those are all very important points, but I think at the end of the day, people want to understand what the roadmap looks like, what kind of the adoption looks like, and kind of how much continuing momentum there is there. There's no question that they offered some encouraging data points as well as commentary around the adoption of their new AI products. But it's amazing to think that they were just released at the end of September. So this is the first

full quarter where we've seen those have an impact and they've introduced more and are expected to introduce more at a pretty strong clip. One expert we spoke to said that ServiceNow could introduce innovations at a much faster rate than companies could understand and adopt them. And so I think kind of balancing that out is a big challenge for the company. You sound like somebody who's not necessarily surprised to see the stock under pressure right now in after-hours trading, despite the strong earnings results we just reported on? Well, so Morgan, I mean, John spoke to some of the recent performance metrics from a stock perspective. The stock is up over 70% over the last year. And the reality is that

while this company has performed very well, I think ServiceNow is understood as a pretty conservative operator. I think a lot of people want to understand if this is going to be a company that's going to generate organic revenue growth closer to 20 percent or closer to 30 percent. We spoke to someone recently who told us that he wouldn't be surprised if the growth were closer to 30 percent. And that's kind of the discussion, the debate that's going on right now regarding this company and this stock, we think. So what do you want to hear on the conference call? What do you plan to ask? I think what people really want to understand is how much momentum is there associated with the product pipeline as it pertains to AI. And then the flip side of that

is how much demand is there. I think we all understand that ServiceNow and many other software companies are charging significant premiums for AI-enabled products, somewhere between 50 and 100 percent. The question that I think a lot of people are asking is whether or not there's enough bang for the buck in that context. Bill McDermott has talked about this notion of fast ROI. And frankly, folks that we've spoken to have said, hey, you can get 30, 35, 40 percent productivity and efficiency improvements. And we've talked to people who say those could be conservative. So trying to figure out those constructs and how much demand there will be as a result

really is what investors are trying to figure out at this point. All right. Scott, thanks for joining us. Ahead of the call with Shares of Service Now down about 1% right now. Up next, we will run through all of the after-hours earnings movers that need to be on your radar as we do await those calls from Tesla and IBM as well. Check out shares of Knight Swift, shares of the trucking company under pressure after missing on earnings and revenue, also giving a weak outlook.

The company's saying, quote, the challenging truckload market persists while the less than truckload market continues to see positive volume and pricing. Shares are down about 1.5%, 2% right now. But this is interesting because truckload tends to be skewed more toward the consumer and retail, as does intermodal for the railroads where CSX saw flat volumes. So perhaps some read-through there, John, on inventories and what we could potentially expect

in terms of the destocking versus restocking cycle for retailers in the coming weeks when we get those results. All right. Yeah, bits and atoms important here on overtime. Speaking of bits, Intel and Visa are going to headline another hour earnings tomorrow in overtime. And we'll tell you who else's results to watch when overtime returns. Before we head out, though, a quick news alert here on Boeing. Senator Maria Cantwell, chair of the Senate committee that oversees air travel, just announcing hearings to look into the root causes of safety lapses at Boeing. We think we know what that's about.

No date has been set yet, but the announcement comes just hours after Cantwell met with Boeing CEO Dave Calhoun, who spent the day with lawmakers in Washington, D.C. We'll be right back. Welcome back. Tomorrow is going to be another massive hour of earnings here on overtime. Chips, charges, comms and jeans, Intel, Visa, T-Mobile, Levi Strauss, Capital One, Western Digital, KLA and L3 Harris all reporting after the bell. This sounds like it's going to be an even longer first block of our hour than it was today, dare I say. Ready for it.

We're going to strap in the seatbelt. CEO of T-Mobile will join us to break down his results before he discusses them with analysts on the earnings call. Plus, don't miss my exclusive interview with CSX CEO Joe Henricks, who will break down his company's earnings tomorrow at 10 a.m. Eastern. I do want to go back to T-Mobile, though, for a minute, because you had AT&T reporting results today. The 2024 guide sent the stock lower, but they added subscribers. Similar story for Verizon in terms of adding subscribers in Q4. So it'll be interesting to hear what T-Mobile has to say. Also, on a day where we're talking about Elon Musk and Tesla, his other company, SpaceX,

is working with T-Mobile. They sent their first text via Starlink satellites just a couple weeks ago. It'll be interesting to hear more about that. Yeah, yeah, interesting. Demand, that's a big question. You were just talking about consumer demand and that read-through on Night Swift, I believe. We're going to get more on it from T-Mobile, which has been doing very well with subscriber ads versus the wireless industry overall. But are they buying phones? Is it on the high end or are

they behaving with a tilt toward inferior goods? That's going to be important to see on the consumer side as we're watching it play out perhaps in the enterprise as well. That's right. In the meantime, we did see the S&P and the Nasdaq 100 eke out records today, but it was really a mixed picture as earnings are mixed as well. That does it first here at Overtime. Fast money starts now.